How Can I Get a Lien For Someone Else's Taxes Released From My Property in Escrow?

If a delinquent taxpayer has some interest in your property, or the IRS (sometimes mistakenly) thinks that is the case for some reason, the tax code provides for a deposit mechanism that will allow you to dispute the attachment of the lien while the sale goes through.

The release or discharge of property from a federal tax lien is governed by 26 U.S.C. § 6325, entitled, “Release of lien or discharge of property.” Paragraph (b)(4) of that section, entitled, “Right of substitution of value,” provides for a request that can be made with a deposit of the equity to which the lien would attach.

The request is made by submitting an application for certificate of discharge. The regulations under section 6325 require the application to contain the information requested in the appropriate IRS publication. . IRS Publication 783, “Instructions on how to apply for Certificate of Discharge From Federal Tax Lien,” lists the required information and attaches the application form – IRS Form 14135, “Application for Certificate of Discharge of Property from Federal Tax Lien.” The correct deposit amount is determined by the IRS, as required by section 6325(b)(4)(A)(), taking into account the property’s value and encumbrances with priority over the tax lien. When such amount is “submitted pursuant to the application,” it is treated as the deposit.

Once the application is made and the appropriate sum is deposited with the IRS, the IRS has no discretion to refuse to issue the certificate of discharge. However, to have your deposit refunded, you must convince the IRS that the delinquent taxpayer’s interest in the property is less than the amount deposited. If the IRS denies the request for return of some or all of the deposit, the property owner can contest the attachment of the lien within 120 days after the date the certificate of discharge was issued.