IRS Tax Liens and their Effect on Short Sale

A recent featured article from the Chicago Tribune highlighted the effect that IRS tax liens can have on the sale of a house. A man wrote in asking what would happen if the bank had approved a short sale on his house but he also had a remaining IRS tax lien from an issue with back taxes in the 20078 and 2009. He asked whether he can continue paying off the amount due to the IRS, through the payment plan that he had established, and still sell the house.

According to tax experts, it is essential to note that although the bank may have agreed to a short sale, the individual is only halfway to selling his home if the individual has an IRS tax lien. The lien will stop the individual from selling his home until the lien is either paid off or released by the Internal Revenue Service.

The experts also note that if there is no equity available in the property being sold, there is effectively no reason for the IRS to maintain the tax lien placed against the residence in question, as the aim of the lien is to secure the government’s interest in a property in the event of an accrued tax debt. Regardless of whether or not there is a point to the IR S having an interest in the property, it is still the taxpayer’s responsibility to come to a payment agreement with the IRS. It is possible for the taxpayer to sell the house and move.

The next step a taxpayer must take after receiving an offer for the home is to contact the lender in order to begin the short sale process. The taxpayer must also contact the IRS at the same time so that appropriate documentation can be filed. Both the IRS and the lender may ask to receive duplicate documentation from the taxpayer on both ends.

If the IRS approves the release of the tax lien, it will provide documentation to the taxpayer at this point regarding the conditions on which the release is predicated. A common condition is that the taxpayer doesn’t receive any money from the short sale, with the money going directly to the IRS to pay off the tax debt. The IRS may also be entitled to any money the individual may receive from the lender in order to move out of the property quickly.

The best thing an individual can do to ensure a short sell with the least amount of complications is to make sure the IRS has a part in the process. The Internal Revenue Service must be contacted; the proper documentation must be filed,

If you are in the midst of a difficult tax situation while trying to sell your house, contact a competent IRS tax attorney who can assist you in the process.


Segal, Cohen & Landis
9100 Wilshire Blvd. Ste. 601E
Beverly Hills, CA 90212
(310) 285-3999

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