Discharge of IRS Tax Liens In Connection With A Florida Short Sale Part III

If the taxpayer applies under IRC Section 6325(b)(2)(B), there will be a determination of the amount required for a discharge or a determination that the tax lien is valueless within 30 days from the date of the application. As a caveat, the IRS notes that if an application is made under IRC Section 6325(b)(2)(B), the certificate of discharge will be issued, once the foreclosure proceeding has been concluded.

Although IRC Section 6325(b)(2)(B) may be used to apply for discharge with regard to short sales, the provision is directed mainly at foreclosures. An application for discharge under this section should explicate that a short sale in lieu of a foreclosure proceeding will not change the position of the IRS in relation to the property or the taxpayer.

The taxpayer must apply for discharge by submitting a copy of the proposed escrow agreement and completing Form 14135. It is important to remember to submit the application at least 45 days before the transaction date from which the certificate of discharge is needed. Along with the application, the taxpayer must submit a deposit or a bond in the amount of liability owed to the United States. IRC Section 6325(4)(B).

To apply under this section, the taxpayer should provide a description of the property with a copy of the deed. The application should include: when the property is to be sold, any and all liens to the property (junior and senior to the tax lien), and an itemization of all costs. In the application, the taxpayer should state whether foreclosure proceedings are expected to begin or are pending.

Finally, it is also advisable that an application includes an appraisal by a disinterested third party. Although this requirement applies to taxpayers applying under a different section, the value of the property is what is at issue. IRS Publication 783 offers instruction on how to apply for a certificate of discharge from a federal tax lien.