The CSED for my tax debt is in 3 months, but the sellers of the property (it's an all cash deal) want a 30 day escrow. I have a payment agreement with IRS in good standing, no enforcement is pending with them. Can I take title for a cash deal with an outstanding IRS lien? If not, can/should I form an LLC and have it take title? The property is a duplex (income producing as well as owner occupied). Is there a better option I have not considered?
Beware of engaging in tax evasion (a federal crime) when you are purchasing real estate and attempting to escape a federal tax lien. In addition, your proposed transaction could be deemed a fraudulent conveyance by the IRS, resulting in the piercing of the LLC, and the seizure and sale of the asset - especially if it is a single member LLC in California.
This is not a transaction that you should engage in without a seasoned tax counsel. After all, you are purchasing the real estate wtih your funds which you could have used to pay off the IRS.,
Phillip M. Smith Jr.
Los Angeles Tax & Business Attorney
Licensed in the United States Tax Court
Call: 323-292-4116 or 562-505-1004
THESE COMMENTS ARE NOT LEGAL ADVICE. They are provided for informational purposes only. Actual legal advice can only be provided after consultation by an attorney licensed in your jurisdiction. The answer to question does not create an attorney-client relationship or otherwise require further consultation. Mr. Smith is licensed to practice law throughout the state of California with offices in Los Angeles County. He is authorized to handle IRS matters throughout the United States, and is also licensed to practice before the United States Tax Court. His phone number is 323-292-4116 or his email address is firstname.lastname@example.org.
No, unfortunately not - the only way past this little obstacle is through it. Until the lien expires, it will cloud the title and prevent a transfer of title. If it's not an option to wait the remaining 90 days until the expiration date arrives, there are at least two options depending on your circumstances. Keep in mind that without the details, these may or may not make sense but at least you can consider them. I'm assuming the tax debt is with the IRS but the same will apply with the CA Franchise Tax Board.
1. The IRS, in certain situations, will consider temporarily releasing the lien on the property to allow for the sale, then re-establish the lien afterwards on any other assets you may have. However, there's a drawback because this may extend the CSED another 10 years so be careful.
2. Include the IRS in negotiations to complete the transaction and use and offer-in-compromise, or inclusion in the payout on the property to satisfy the lien. Again, depending on the circumstances, the IRS has broad latitude to cooperate in such situations so they're not responsible for messing up an otherwise good thing. They may be willing to take some sale proceeds to settle the debt and fully release the lien.
Another option that's often overlooked if the tax debts are the result of income tax is to consider amending the tax returns for the years giving rise to the tax liability. This eliminates the basis for the tax lien and automatically releases the tax debt. It may be worth having a tax professional review the return as we find that almost all tax returns show more tax due than is necessary.
Lastly, your 30 day deadline is going to be very challenging to meet. Most issues involving the IRS take longer than this to resolve but the sooner you start the better your chances. Make sure the buyer is onboard with the issues and recognizes that you're commited to resolving them as quickly as possible. And this is definitely a situation where you don't have time to learn the ropes. If you're not very familiar with IRS code and procedure, get a professional involved - at least you'll eliminate the time lost learning and improve your chances of getting things done on, or close to your deadline.
A loin doesn't affect your ability to purchase property, but will affect your ability to secure financing. Since this is a cash deal, financing will not be an issue. The lien will attach to the property upon transfer, but will extinguish with the card. You should consult an attorney regarding what the repercussions of the lien will be in your specific case. As mentioned, beware of fraud issues.
This response is for informational purposes only and is not intended for legal advice. IRS Circular 230 Disclaimer: To ensure compliance with IRS Circular 230, any U.S. federal tax advice provided in this communication is not intended or written to be used, and it cannot be used by the recipient or any other taxpayer (i) for the purpose of avoiding tax penalties that may be imposed on the recipient or any other taxpayer, or (ii) in promoting, marketing or recommending to another party a partnership or other entity, investment plan, arrangement or other transaction addressed herein.