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If I apply for an Office in Compromise will the IRS put a lien against my house--making it impossible for me to refinance?

Newtown, PA |

I would like to refinance, and am afraid a tax lien will make it impossible to do so. I owe several thousands of dollars to the IRS for the 2012 tax year, I want to apply for an Offer in Compromise but heard the IRS will place a lien against my home if I do--even if my offer is rejected. Is this true? How much money do you have to owe before they will take such action? $1,000, $5,000, $10,000? more? If I signed an installment plan instead--requiring me to pay the full amount of my 2012 taxes--will the IRS still place a lien against my home? Lastly, If a lien is placed against my home how long will it affect my credit? Should I try to refinance immediately just in case?

Attorney Answers 4

Posted

The analysis is on point. However, you can apply to the IRS to subordinate the lien so you can re-finance. You will need to File Form 14134 with IRS. It takes some lead time but we have some luck with it. It can be a part of the process the answers have discussed.

Any advice contained in this email (including any attachments unless expressly stated otherwise) is not intended or written to be used, and cannot be used, for purposes of avoiding tax penalties that may be imposed on any taxpayer.

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Posted

The IRS tends to be "lien happy" in that they will file a lien any chance they get. They continue to file liens even though studies have shown that they do not typically result in the IRS getting more revenue. It is difficult to say whether or not the IRS will file a lien in your case based on the information you provided. You may be able to avoid a lien by entering in to a specific type of installment agreement, that is true. Also, if you do file an Offer in Compromise, and it is successful (accepted) then you won't have to worry about a lien. An accepted offer will result in a "clean slate" and you would be able to get the IRS to remove any liens that were previously filed. You should speak with an experienced tax attorney so you can discuss your options. Not everyone meets the strict criteria for an Offer in Compromise. But even if the OIC is not right for you, there may be other options.

This response should not be considered legal advice. No attorney-client relationship is formed by this response, which reflects only the opinion of the author. The response should not be relied upon as legal advice. The response given is based upon the limited facts provided by the person asking the question and could change if additional facts were made available.

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Posted

To augment Mr. Wetenkamp's answer, there will be no lien placed on your property if you enter an installment agreement. If you already have a lien filed against you, the IRS will release it if you enter an Installment Agreement and you must then petition the IRS to withdraw it.

As my colleague noted, you won't need to worry about liens of your Offer is accepted. If your Offer about to be rejected, the Offer Examiner will give you an opportunity to withdraw the Offer first, allowing you to enter an Installment Agreement. The process of filing an OIC can take a very long time - at least a few months.

As to your last question, the lien will continue to encumber your property until you reach a payment agreement, the debt is paid off, or the deficiency becomes noncollectable - usually 10 years from the date the deficiency was assessed. How long a lien will affect your credit is unclear because the IRS does not report the lien to credit bureaus. A lien is a matter public record that the credit bureaus can discover. If the lien is released, it will stay on your credit report for 7 years. You must ask the IRS to withdraw the lien by filing Form 12227.

When a lien is withdrawn, the IRS doesn't report anything to the credit bureaus. They will not help you remove the lien from your report, but it can be removed from your credit report immediately. You have to contact the bureaus and tell them the lien has been withdrawn. They will confirm withdrawal and clear your report.

Consult a tax attorney to learn more about liens and how to avoid, release or withdraw them.

Robert Hoffman is a tax attorney licensed in California. The information presented here is general in nature and is not intended as a substitute for legal advice. This posting does not create any attorney-client relationship with the author. For competent advice about your particular situation, consult your own attorney.

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Posted

Mr. Hoffman is right on point in his summary. I would add that if your liability is only 10 - 15 K, you should consider the IRS Fasttrack program.

A tax attorney or accountant can guide you through the process.

Responses provided herein are generalizations and not intended to be authoritative or specific to a given situation. Such responses cannot be used by a taxpayer, for the purpose of avoiding any penalties that may be imposed by any governmental taxing authority or agency.

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