Tax Lawyer's Blog

Americans are being kicked out of their homes at an alarming rate and the IRS says it wants to help.

When taxpayers have federal tax liens on their homes they cannot transfer clear title to potential buyers or refinance lenders unless the lien is either subordinated or discharged completely. 

Taxpayers can, however, obtain a subordination of lien or discharge (PDF) by filing a formal application for it. The IRS is under no obligation to grant the request and generally will not grant one unless it is in its best interest to do so.

Kay Bell of Don’t Mess With Taxes in a post titled Home Liens to Get Special Attention says that,

The IRS does have heart! Yesterday, the agency announced that it is instituting an expedited process to help remove tax liens from the homes of financially struggling owners.

IRS Commissioner, Doug Shulman, said that the IRS will be instituting a program that will expedite the process for subordination or discharge of a federal tax lien that was previously placed on certain taxpayers’ residences.

Clearly, these are difficult times for the U.S. economy,” said Shulman in announcing the revised IRS policy. “Many homeowners are at risk of losing their homes. The IRS is doing whatever it can under the constraints of law to avoid getting in the way of people trying to refinance or sell their homes.”

The IRS has said that it will be making efforts to speed up the subordination/discharge time frame.

“We want to process these so that it won’t delay a closing or sale,” said Fred Schindler, director or IRS Collection Policy. “If times is short, the goal is to get through the process as quickly as possible. We are increasing our staffing, working as quickly as possible, but it is hard to give you a firm time table. We will do our best.”

Subordination and discharge have always been available to taxpayers seeking to refinance or sell their homes; however, the process has been historically slow.

Even though the IRS claims it only takes 30 days to process a subordination/discharge request, we have found that the process takes much longer as a result of IRS agents’ requests for duplicate information and other actions of delay.

Author’s Observations:

This alleged “policy shift” irritates the beejeebers out of me and makes me wonder whether the IRS isn’t doing it just to gain some publicity brownie points.

Here are my observations:

1.   The IRS should have already been processing lien subordination and discharge requests on an expedited, emergency basis. People cannot sell or refinance their homes without the IRS’ cooperation whether or not our economy is in a recession.

2.   If we are we to take seriously Fred Schindler’s promise that the IRS will now try to process lien subordination and discharge applications “as quickly as possible,” doesn’t that mean that the IRS was not doing so before?** 

3.   Lien subordinations and discharges are only done when it is determined to be in the government’s best interests. This is just as true now, after Shulman’s and Schindler’s statements, as it was before they announced the policy shift. In effect, then, the IRS is merely pretending to be kinder, gentler and more compassionate by accelerating a program that primarily benefits itself. 

I don’t know about you, but I’m not going to pat the Commish on the back and give him an “attaboy” for that.

**My experience is that the IRS has historically taken a cavalier (“we’ll get to it when we get to it”) attitude towards lien subordination and discharge applications.

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