IRS Federal Tax Lien Subordination: How Does it Work?

The language of tax liens can be confusing, especially the term IRS Federal Tax Lien Subordination. What does this even mean? Processes such as discharge or subordination promise to provide at least temporary relief from difficulties with selling or refinancing a property, but the actual process of applying is complicated, at best. Keep reading to learn what subordination is, when it’s used, and the impact it might have on your life.

Subordination Versus Discharge

After you’ve been issued a federal tax lien, your first priority may be to remove it completely. This is known as a discharge, and, unfortunately, it can be difficult to obtain.

Lien subordination takes a different approach, placing other creditors ahead in line rather than getting rid of the lien altogether. This option can be favorable when dealing with a mortgage. Otherwise, a federal lien can limit the potential for refinancing, which, without such complications, might be used to help pay a tax debt.

Priorities When Subordinating a Tax Lien

With subordination, it’s important to demonstrate that your efforts will ultimately benefit the IRS. Otherwise, approval is not likely when submitting an application for a Certificate of Subordination.

Other details worth highlighting when completing this application include:

  • Contact information for the taxpayer, representative, property owner, and lending company.
  • Monetary information such as the amount of the new or existing loan.
  • A description of the property in question. A copy of the deed or title may be attached to the application.

Additionally, the application should reference the basis for the subordination. Two main options are available: the US receiving “an amount equal to the lien,” or increasing the government’s interest while making it easier to collect existing tax liabilities. An appraisal of the property can be helpful but is not required for subordination.

Are you interested in subordinating your federal tax lien? Or would you like insight into the other available options for dealing with liens and other IRS actions? No matter your preferred approach, you can count on Highland Tax Group for advice. Reach out today to learn more.