I represent taxpayers in the Twin Cities, Minnesota and all the 50 States in the United State before all administrative levels—examination, collection, and appeals—of the Internal Revenue Service (IRS).
If a taxpayer owes money to the IRS, there is already a tax lien against them and all their assets, including those assets they acquire in the future. The IRS often files a public notice to let all other creditors know that money will be paid to the IRS first, and that other unsecured creditors will be behind the IRS in priority. This filing is referred to as a Notice of Federal Tax Lien (NFTL), which is a public document filed to alert third parties that the taxpayer owes the IRS money.
There are few options to get a lien remove so that a taxpayer you can their sell your home or refinance even though you owe back tax debt to the IRS. One of the options is IRS Subordination.
IRS Subordination: A third party lender may be willing to lend money to the taxpayer but there is a lien on the home. The IRS may allow the third party to move ahead of them if the IRS’ ability to collect the taxpayer’s debt is improved, then the IRS will agree to subordinate its lien to that of the third-party lender.
The IRS will allow the subordination if the deal will enhance the IRS collection potential of the back IRS debts. For example,
The lender will refinance the property allowing the taxpayer to obtain cash and pay down their IRS tax debt, and
The refinance will pay for improvements to the property, which will increase the value and therefore allow the IRS to potentially collect more later.
In general, a request for lien subordination with the necessary information is filed with the IRS Lien Unit, and once the particulars are negotiated the IRS will give the taxpayer a letter stating that they will subordinate their lien upon the receipt of whatever closing statements and/or cash it expects from the closing. After the IRS receives what it needs it will send the subordination to the taxpayer to file in the land records.