A discharge removes a federal tax lien from one named property. A subordination keeps the lien but lets a named creditor move ahead of the IRS. A withdrawal removes the public Notice of Federal Tax Lien, and you still owe the amount due. A release ends the lien after the tax debt is paid in full. Tax Solution Pro Advisor in Sugar Land helps Houston taxpayers with IRS tax problems.
- A federal tax lien discharge is requested on IRS Form 14135.
- A federal tax lien subordination is requested on IRS Form 14134.
- A lien notice withdrawal is requested on IRS Form 12277.
- The IRS asks for discharge and subordination applications at least 45 days before the transaction date.
What is the difference between a federal tax lien withdrawal, discharge and subordination?
The difference is what each one changes. On its federal tax lien page, the IRS says a discharge removes the lien from specific property, a subordination doesn't remove the lien but allows other creditors to move ahead of the IRS, and a withdrawal removes the public Notice of Federal Tax Lien while you're still liable for the amount due. A fourth word, release, is the one that ends the lien: the IRS says it releases a lien within 30 days after the tax debt is paid in full.
| What it does | What stays | |
|---|---|---|
| Discharge | Removes the lien from one named property | The lien on your other property |
| Subordination | Lets a named creditor move ahead of the IRS | The lien on that property |
| Withdrawal | Removes the public Notice of Federal Tax Lien | The amount you owe |
| Release | Ends the lien after the debt is paid in full | The public lien notice, which the IRS may withdraw after the release if you apply |
When does a discharge fit a Houston home sale?
A discharge fits when one property has to change hands without the lien. IRS Publication 783 says a Certificate of Discharge removes the United States' lien from the property named in the certificate. The publication lists five legal bases, and you pick the one that matches your sale on the application, Form 14135.
| Internal Revenue Code section | When a discharge may be issued |
|---|---|
| 6325(b)(1) | Your remaining property under the lien is worth at least twice the total of the tax debt and any debts on it entered into before the IRS filed its public lien notice |
| 6325(b)(2)(A) | The IRS is paid at least the value of its interest in the property |
| 6325(b)(2)(B) | The government's interest in the property has no value |
| 6325(b)(3) | The sale proceeds are held under an escrow agreement with the IRS |
| 6325(b)(4) | A third party who owns the property makes a deposit or posts a bond equal to the government's interest |
Publication 783 says a discharge under section 6325(b)(1) or 6325(b)(2)(B) doesn't require a payment. One under 6325(b)(2)(A) does, but you don't send it with the application: the IRS tells you when to pay after it works out the amount due. The publication also asks for the application at least 45 days before the transaction date. So for a Houston closing, count back at least 45 days from the closing date.
When does a subordination fit a refinance?
A subordination fits when you're keeping the property and a lender won't sit behind the IRS. IRS Publication 784 says a Certificate of Subordination lets a named creditor move its junior position ahead of the United States' position for the property named in the certificate. In the publication's refinance example, the lien remains on the property and the refinanced loan has priority over it.
There are two bases. Under section 6325(d)(1), the IRS may subordinate if it's paid an amount equal to the interest it's stepping behind. In Publication 784's example, that's the equity a refinance produces after the old loan and the closing costs are paid. Under section 6325(d)(2), the IRS may subordinate if it determines the certificate will increase the amount the government realizes and make the tax debt easier to collect. The publication's example is a refinance to a lower interest rate that allows a larger monthly payment on the tax debt. The application is Form 14134, with the same 45 days.
When can the IRS withdraw a Notice of Federal Tax Lien?
When one of the reasons on the application applies. IRS Form 12277 lists four. The notice was filed prematurely or not in accordance with IRS procedures. You entered into an installment agreement that didn't provide for a notice to be filed, with a separate box for a Direct Debit Installment Agreement. Withdrawal will facilitate collection of the tax. Or you, or the Taxpayer Advocate acting for you, believe withdrawal is in the best interest of both you and the government. If the IRS agrees, the form says it files a withdrawal in the recording office where the original notice was filed and sends you a copy. If it doesn't, it tells you about your right to appeal.
The IRS lien page describes two withdrawal options in more detail. One comes after a release: the debt is satisfied, the lien is released, you've filed all individual, business and information returns for the past three years, and you're current on estimated tax payments and federal tax deposits, as applicable. The other is for a Direct Debit installment agreement. Among the general conditions the IRS lists: you owe $25,000 or less, the agreement pays the debt in full within 60 months or before the collection period ends, whichever is earlier, you've made three consecutive direct debit payments, and you haven't defaulted on a current or earlier Direct Debit agreement. If you owe more, the IRS says you can pay the balance down to $25,000 before you ask. Our page on IRS relief options covers payment plans.
Which request should a Houston homeowner ask about?
Start from what you're trying to do with the property. The table matches the situation to the request.
| Your situation | The request that matches | Where the IRS explains it |
|---|---|---|
| You're selling one property and the lien is in the way | Discharge | Publication 783 and Form 14135 |
| You're refinancing and keeping the property | Subordination | Publication 784 and Form 14134 |
| The public notice itself is the problem | Withdrawal | Form 12277 |
| You've paid the tax debt in full | Release | Publication 1450 |
On a release, IRS Publication 1450 says the IRS issues a Certificate of Release for filing in the same recording office where the notice of lien was filed. You may also be able to appeal a lien filing, on deadlines of its own. Our post on Collection Due Process and equivalent hearings covers those. For lien questions, the IRS lien page points taxpayers to its Collection Advisory Group for discharge, subordination and withdrawal, and to its Centralized Lien Operation for a payoff amount or a release.
Is a federal tax lien the same as a levy?
No. The IRS says a lien secures the government's interest in your property when you don't pay your tax debt, and a levy actually takes the property to pay it. While a lien is in place, the IRS says it attaches to all of your assets, including ones you acquire later, and to business property such as accounts receivable. It also says a filed notice may limit your ability to get credit. For wage levies, see our page on IRS wage garnishment relief.
Who can file a lien request for you in Houston?
You can, or an authorized representative can. Publication 783 says the applicant or their authorized power of attorney signs the discharge application. Thuy Nguyen, who leads our firm, is a Texas CPA and Certified Tax Coach, and we help individuals and businesses resolve IRS tax problems through our tax resolution and settlement service. If you're not sure which request matches your sale or refinance, a tax consultation is the place to start. The IRS decides every one of these applications on its own facts, so no one can promise you a certificate.
Sources
- IRS: Understanding a federal tax lien
- IRS Publication 783, How to Apply for a Certificate of Discharge From Federal Tax Lien (Rev. 12-2022)
- IRS Publication 784, How to Apply for a Certificate of Subordination of Federal Tax Lien (Rev. 12-2022)
- IRS Form 12277, Application for Withdrawal of Filed Form 668(Y), Notice of Federal Tax Lien (Rev. 10-2011)
- IRS Publication 1450, Instructions for Requesting a Certificate of Release of Federal Tax Lien (Rev. 7-2018)
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Written by Tax Solution Pro Advisor (about the firm). General information, not advice for your situation. IRS rules change; each rule above links the IRS page it comes from.