IRS Tax Liens: How to Release and Subordinate a Tax Lien

There is a lot of debate in the tax professional community right now regarding links. The IRS and many other state revenue organizations use tax liens to secure their interest in your outstanding tax debt. Links are a source of debate in the tax professional community because their effectiveness in achieving any real purpose (particularly when the taxpayer has no assets) is debatable. Plus, as you noted, they hurt your credit score and prevent you from borrowing to meet the obligation. Here are two of the most common questions I get asked in my practice.

How to release or remove a link

Release of a federal tax lien is subject to three main conditions: your debt is paid in full, payment with respect to your debt is secured by a bond, and the collection period has ended (Publication 594, “Reasons Why ‘Let’s Liberate’ Federal Tax Link,” 6/4/2013). Lien release means the IRS has discharged both the lien on your debt and the Public Notice of Federal Tax Lien. The IRS will file a Federal Tax Link Release Certificate with state and local authorities.

There are additional options to release and/or release a link. For example, if you enter into an “Installment Agreement to Meet Tax Obligation, unless the Agreement provides otherwise, the IRS may withdraw the Notice of Federal Tax Lien” (Publication 594). The IRS may post a link to “help you pay your taxes faster” (Publication 594). If the IRS did not follow proper procedures, the link may be released. If the lien was filed during a bankruptcy automatic stay period, the lien may be released. Finally, if it is in your best interest and the government’s best interest, the IRS can release a lien.

Lastly, a lien can be released when a taxpayer requests a discharge (of a federal tax lien), which is defined as the removal of the lien from a specific property. There are two main circumstances that contribute to the discharge of a federal tax lien. For one thing, the IRS can issue a Certificate of Discharge if you are selling the property. The removal or discharge of the lien on the property is usually accomplished at the time of sale. For more information on how you can qualify for a discharge, see Publication 783, Instructions on Applying for a Federal Tax Link Property Release Certificate.

Subordination of a link

Federal tax lien subordination is defined as the process of requesting that a creditor be able to “advance government priority position” (Publication 594, “Making IRS Lien Secondary to Other Creditors [‘Subordination’]). For example, an IRS lien takes precedence over a new mortgage. When you try to refinance your home, you can’t due to government priority. In some cases, you can request that the federal government subordinate your bond to the new mortgagee. For more information on lien subordination, see IRS Publication 784, How to Prepare an Application for a Lien Subordination Certificate.