What Is IRS Lien Subordination?
IRS lien subordination is an important tool for taxpayers who are struggling with debt. It can help reduce the amount of money owed to the IRS and give a taxpayer more control over their financial situation.
Why Would You Want a Tax Lien Subordination?
As stated by the IRS, a lien is a legal claim on a piece of property that’s used as security for payment of taxes. If you don’t pay your taxes in full, the IRS can place liens on your assets like real estate or vehicles, which means they’ll have a right to those assets until you pay off the taxes.
Subordination is a process that allows someone else, such as a lender, to have priority over the IRS lien. This means that if you apply for and get approved for a loan or mortgage, the lender’s claim will be higher than the IRS lien on your property. The benefit of subordinating an IRS lien is that it makes it possible to borrow money without having to first pay off the lien.
What Happens If the IRS Subordinates a Tax Lien?
The IRS may subordinate a tax lien in certain circumstances, which means it agrees to allow another creditor to take priority over the lien. This is known as “lien subordination” and can help taxpayers resolve their debt with the IRS more quickly and efficiently.
When a taxpayer has other debts being paid off (such as mortgage or student loans), subordinating the tax lien allows those payments to be made without concern for any potential IRS liens. This is because the IRS lien will take a lower priority and be paid only after the other debts have been settled.
For instance, if the IRS agrees to subordinate a tax lien, then any mortgage payments made by the taxpayer will take priority over the IRS lien. Then, once the mortgage payments are made, the taxpayer can then begin to pay off the IRS lien.
You can request for the IRS to subordinate a lien if you think it’s in your best interest. This is done by filing Form 14134, Application for Certificate of Subordination of Federal Tax Lien.
The IRS has certain criteria that must be met in order to apply for a tax lien subordination. The taxpayer must demonstrate that they are unable to pay their taxes in full and that they have a valid financial hardship. The taxpayer must also provide detailed information on the loan or financing they need, as well as their income, assets, debts, and other liabilities.
Moreover, taxpayers should be aware that subordinating a tax lien can cause additional complications. For example, if the taxpayer defaults on the loan or financing they obtained while subordinating their tax lien, the IRS may still pursue collection action to collect what is owed.
Why Would a Taxpayer Want To Subordinate a Tax Lien?
Subordinating a tax lien is an option for taxpayers who need to borrow funds or take out a loan in order to cover the taxes due. Requesting a tax lien lets taxpayers obtain financing that would otherwise not be available and have the IRS move their claim down on the list of creditors. This gives them access to much-needed funds, but still requires them to pay off all their debts and obligations before they receive any benefit from it.
Additionally, subordinating a tax lien can provide taxpayers with the financial breathing room they need to pay off their existing debts, while still ensuring that the IRS will receive payment for its claim.
Can Denial of a Request for a Subordination Be Appealed?
The IRS has a process for appealing denials of requests for IRS lien subordination. However, the appeal must be made within 30 days from the date of denial and must meet certain criteria before it is considered.
For starters, an individual or entity requesting subordination must have filed all tax returns required by law and paid any taxes due as well as any applicable interest or penalties that are owed to the IRS. Furthermore, they must present a reasonable basis for why the request should be granted.
Then, the IRS will review the request and either grant or deny it. If denied, the individual or entity can file an appeal with the Office of Appeals to have their case heard by a tax professional.
When making an appeal to the Office of Appeals, it’s important that all relevant information be included in the request, such as copies of financial statements, proof of payment for taxes due, and other supporting documents. The more prepared you are when filing your application, the better.
Conclusion
Subordination of an IRS lien can be used to help taxpayers resolve tax debt. It can allow taxpayers to borrow money, refinance a loan, or transfer property while still protecting the government’s interest in the taxpayer’s assets. If you want to learn more about this or need advice, please get in touch with us today!