How do I….subordinate a federal tax lien?

A federal tax lien on real or personal property may be terminated or altered in the following ways:

  • The IRS must release a tax lien if the IRS determines that the tax liability has been paid or is legally unenforceable.
  • The IRS has discretion to discharge specific property from a tax lien in certain circumstances.
  • The IRS may withdraw a notice of federal tax lien even though the lien has not been paid or satisfied, in certain circumstances.
  • The IRS may subordinate tax liens in certain circumstances.
  • The IRS may issue a certificate of non-attachment.

In some cases, a federal tax lien can be made secondary to another lien, such as a lending institution’s lien. This is known as subordination of the federal tax lien. The IRS may issue a certificate of subordination to a federal tax lien. This certificate of subordination allows a named creditor to move its junior creditor position ahead of the government’s position for the property named in the certificate.

Generally, IRS guidelines instruct that the agency must exercise good judgment in weighing the risks and deciding whether to issue a certificate of subordination and subordinate a federal tax lien. This exercise of judgment is similar to the decision that an ordinarily prudent business person would make in deciding whether to subordinate his or her rights in a debtor’s property in order to secure additional long run benefits.

Subordination has occurred in cases where, for example, a taxpayer’s mortgage lender is offering refinancing or a workout. Without lien subordination, taxpayers may be unable to borrow funds or reduce their payments. Lending institutions generally want their lien to have priority on the home being used as collateral. The IRS may also consider subordination in other cases.

Subordination does not remove a federal tax lien. The lien remains in place. Keep in mind also that the IRS has discretion whether to accept or reject subordination of a federal tax lien.

Please contact our office if you have any questions about subordination of a federal tax lien or federal tax liens in general.

Written by

Steve Moss, CPA is a partner at Holden Moss CPAs and loves helping businesses and their owners grow to be the very best they can be. Our other offices include Raleigh, Oxford and Warrenton.

We are a little different at Holden Moss CPAs. While we still provide traditional tax and accounting services, years ago we realized many clients wanted help in running their businesses and were hungry for ideas, solutions, strategy, and execution. In response, we expanded our skill set and joined Ran One, a global network of business consulting firms. Our membership with Ran One gives us access to proprietary resources and analytical software to help our clients grow, become more profitable and valuable, and have the lifestyle they desire.

Now, blended into the fabric of our normal tax and accounting needs, we are focused on our clients’ businesses in a very different way. While our approach is not right for everyone, for those whom it is, incredible results may be obtained. Whether you have a new, or established, business, or for those in transition of selling or retiring, or for those who simply need to develop an exit strategy or succession plan, our unique approach to client service may be the edge you need.

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