Helpful Tips and Suggestions forYour Appl ication

SUBORDINATING AFEDERAL TAX LIEN

Washington and Lee UniversitySchool of Law Tax Cl inic

Lewis Hal l #249Lexington, VA 24450Phone (540) 458-8918

taxcl inic@wlu.edu

WHERE TO START?

Are you sel l ing, refinancing, or using yourproperty as col lateral for a loan that wi l l notful ly pay your tax debt?

If so, you can apply for a l ien subordination.Here are some helpful t ips to get started.

WHO CAN HELPYOU SUBMIT THIS

REQUEST?

Thankful ly, Low IncomeTaxpayer Cl inics (LITC) may beable to assist you in applying tothe IRS for a Lien Subordination.Cl inics participating in the LITCprogram provide representationfor individuals in disputes withthe IRS. LITCs can also helptaxpayers respond to IRSnotices and correct accountproblems. These cl inics do haveincome el igibi l i ty requirements.You can f ind a ful l l ist of cl inicsat https://www.irs.gov/pub/irs-pdf/p4134.pdf.

Central ized Lien Operation. Inorder to resolve basic androutine l ien issues, cal l (800) 913-6050 or fax (855) 390-3528.Col lection Advisory Group. Foral l complex l ien issues, includingsubordination, withdrawal, ordischarge, f ind contactinformation for your localadvisory office. This can befound in Publ ication 4235,Col lection Advisory GroupAddresses on irs.gov.

You need to get your subordination application tothe IRS at least 45 days before the sale or loanresettlement meeting.Use Form 14134 to fill out your application. This formcan be found at https://www.irs.gov/pub/irs-pdf/f14134.pdf.For examples when subordination is appropriate,examine Publication 784. You can order thepublication at 1-800-829- 3676 or download it athttps://www.irs.gov/pub/irs-pdf/p784.pdf

How Does a LienAffect You?

Assets. A lien attaches to all of your assets, which

includes property, securities, vehicles, etc. The lien

also attaches to future assets that are acquired during

the duration of the lien.

Credit. Once the IRS files a Notice of Federal Tax Lien

against you, it could limit your ability to get credit.

Business. While the lien attaches to all of your

personal property, it also attaches to all business

property and to all rights to business property. This

includes accounts receivable.

Bankruptcy. If you file for bankruptcy, your tax debt,

lien, and Notice of Federal Tax Lien may continue

even after the bankruptcy.

HELPFUL RESOURCES

WHAT TYPES OF BASISFOR SUBORDINATION?

6325(d)(1)A subordination can be issued under thissection if you pay an amount of money that isequal to the lien or interest to which thecertificate subordinates the lien of the UnitedStates.

6325(d)(2)The IRS may issue a subordination under thissection if it determines that the issuance ofthe certificate will increase the amount thegovernment will realize and subordinatingthe lien will make collection of the taxliability easier.

UNDERSTANDING AFEDERAL TAX LIENA federal tax lien is the government's legalclaim against your property when you fail topay a tax debt. The lien protects thegovernment's interest in all of your property,which includes real estate, personalproperty, and all other financial assets. Afederal tax lien exists when: - The IRS: - Assesses your liability; - Sends you a bill that explains how much you owe - You: - Neglect or refuse to fully pay the debt in the time the IRS affords you

WHAT DOESSUBORDINATION DO?Subordination does not remove the lien, but itallows other creditors to move ahead of theIRS. This can make it easier for you to get aloan, mortgage, or refinance of your home.

DO YOU HAVEOTHER OPTIONS?

Discharge. A discharge removes the lienfrom specific property. There are severalInternal Revenue Code provisions thatdetermine eligibility. For more information,refer to Publication 783, which can befound on irs.govWithdrawal. A withdrawal removes thepublic Notice of Federal Tax Lien andassures that the IRS is not competing withother creditors for your property.However, you are still liable for theamount due. For eligibility, refer to Form12277, which can also be found at irs.gov

WHAT DOES THEAPPLICATION REQUIRE?

Sections 1, 2, and 3 of Form 14134 are selfexplanatory, which require basicinformation about the taxpayer/applicant.If you are using a representative, fill inSection 4 and indicate that you are beingrepresented.Section 5 pertains to the contactinformation for your finance company. Ifyou are refinancing or getting a loan, thenyou enter your existing and new loanamounts in Section 6.Section 7 is where you assert that you aresubmitting a subordination request. If yourrefinance or loan is to obtain money toapply to your tax debt, then you wouldcheck the first box 6325(d)(1). However, ifyour refinance or loan will not providemoney for your tax debt, but you can showthat it would mutually benefit you and theIRS, then check the last box 6325(d)(1).Section 8 asks for a description of yourproperty, which could be either real estateor personal property. If the property isreal estate, then be sure to include alegible copy of the deed.Section 9 calls for a copy of the appraisal,which is to be completed by a disinterestedthird party. However, this type ofappraisal is not required for a certificateof subordination.Section 10 asks for a copy of the federaltax lien that is attached to your property.You can either provide a copy or state thelien number.Section 11 asks for a copy of the proposedloan agreement. If you do not have a loanagreement, then you need to show howyour new loan will benefit the IRS.Section 12 requires a copy of the currenttitle report. If you do not have a titlereport, then you must list all creditors withliens or claims against the property beingsold or used as collateral. For Section 13,the IRS needs a copy of your proposedclosing statement in order to determinehow the money will be distributed.

IMPORTANT THINGS TOKNOW

If you want to refinance and candemonstrate to the IRS that you intendto use the savings on your mortgage orcash from your home equity to payyour taxes, the IRS will usually agree tosubordinate the lien. In other words,the IRS will subordinate your lien whenit is in the best interest of thegovernment.The refinancing can be in thegovernment's best interest if: (i) theIRS receives funding from therefinance; or (ii) the interest rate islower resulting in lower loan paymentsso that you can make larger installmentpayments.