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How can i remove a tax lien filed on my home for unpaid 940/941 taxes?

Los Banos, CA |

i just received a bk 7 discharge. i just talked to the IRS about 940/941 taxes owed & was told i am being placed on unable to collect status at this time due to my financial status and a lien will be placed on my property today. once my situation changes & i am able to make payment arrangements (hopefully i can obtain an OIC ) will i be able to have the lien removed while on payments or not until the agreed amount is paid in full ? how difficult will it be to have it removed? should i be filing bk 13?

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Attorney answers 5

Posted

The lien will remain until it is paid or it expires (and is not renewed) after 10 years.
A Chapter 13 will require you to pay it within 5 yrs while a payment plan with the IRS may give you more time.

Richard Gordon Stack

Richard Gordon Stack

Posted

Unfortunately, the trust fund component of your Form 941 payroll taxes (i.e., the income taxes withheld from the wages and salaries of the employees and the employees' 50% portion of the FICA taxes), are non-dischargeable, regardless of the age of those liabilities. Under 11 U.S.C. Sec. 507(a)(8)(C), "a tax required to be collected or withheld and for which debtor is liable in whatever capacity," is a priority tax claim, which is nondischargeable pursuant to 11 U.S.C. Sec. 523(a)(1)(A). Thus, as Mr. Whitaker has stated, the only way to obtain release of your payroll tax lien is to pay in full the trust fund component of those taxes or wait for expiration of the 10-year collection statute of limitations. Good luck in your efforts!

Posted

I'm not addressing bankruptcy in this answer, only IRS procedures. In general, an IRS lien will be released when you pay the tax. You must then ask the credit bureaus to remove the lien from your credit report.

If you file an OIC and it is accepted, the lien will be released once you've paid in full. You can then ask the IRS to withdraw the lien by filing Form 12277. I highly recommend using a tax attorney for this process.

If you cannot qualify for a settlement, it is possible to have the IRS withdraw the lien if you agree to a monthly payment plan and authorize direct debit withdrawals. The applicability of this option will depend on how much you owe. Once again, you should strongly consider hiring a tax professional to ensure the best possible results.

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.

Posted

Tax liens go away (1) when they are paid; (2) when the IRS removes them. A proper Chapter 13 can deal with the pure tax component of the IRS claim with interest and penalties split off into an unsecured, non-priority debt. IRS may give you more time than the 60 months available under BK rules, but they want you to pay the tax, interest and penaltiies, 100%.

Posted

Unfortunately, the trust fund component of your Form 941 payroll taxes (i.e., the income taxes withheld from the wages and salaries of the employees and the employees' 50% portion of the FICA taxes), are non-dischargeable, regardless of the age of those liabilities. Under 11 U.S.C. Sec. 507(a)(8)(C), "a tax required to be collected or withheld and for which debtor is liable in whatever capacity," is a priority tax claim, which is nondischargeable pursuant to 11 U.S.C. Sec. 523(a)(1)(A). Thus, as Mr. Whitaker has stated, the only way to obtain release of your payroll tax lien is to pay in full the trust fund component of those taxes or wait for expiration of the 10-year collection statute of limitations.

In addition, you may wish to consider filing a Chapter 13 petition to arrange for payment of the trust fund taxes that were not discharged in your Chapter 7 bankruptcy case and thereby obtain release of the liens upon full payment of those liabilities (some bankruptcy practitioners refer to this as the "Chapter 20" phenomenon). If you choose to file a "Chapter 20", be sure to hire qualified bankruptcy counsel who is familiar with tax dischargeability issues in bankruptcy or who will consult with a bankruptcy tax attorney.

Good luck in your efforts!

The answer to this question does not establish an attorney-client relationship. Moreover, this attorney is licensed to practiced law ONLY in the State of California. Answers to questions from users in other jurisdictions or states are meant to provide only general information. Users should contact a local attorney in their jurisdiction or state to address their specific tax issue.

Posted

My esteemed colleagues have given valuable advice. I just like to add that while in BK a taxpayer is not eligible for an OIC. Good luck.

Richard Gordon Stack

Richard Gordon Stack

Posted

As I understand it, the IRS formerly had that policy; however, I believe that a court opinion several years ago found that policy to be invalid, as discriminatory toward debtors. Accordingly, if push comes to shove, I believe that the IRS may be required to consider an OIC while a debtor is in bankruptcy. However, the debtor's chances of having an OIC accepted while in bankruptcy are probably very slight. The IRS could quite facilely invent a nondiscriminatory reason for denying the OIC. Thus, as a practical matter, Mr. Fallahi is correct.

Zaher Fallahi

Zaher Fallahi

Posted

Richard: I am handling some OIC s now and the 656 booklet on the first page says: "If you or your business is currently in an open bankruptcy proceeding, you are not eligible to apply for an offer. Any resolution of your outstanding tax debts generally must take place within the context of your bankruptcy proceeding. "

Richard Gordon Stack

Richard Gordon Stack

Posted

Zaher: The case that I had in mind, which I recalled from my days as an AUSA is Mills v. United States (In re Mills), 240 B.R. 689 (Bankr. S.D.W.Va. 1999). There, the bankruptcy court held that the IRS's policy of refusing to consider offers in compromise from bankruptcy debtors was discriminatory and violated 11 U.S.C. § 525(a). At least three courts have in part followed the Mills decision. See Macher v. United States (In re Macher), 2003 Bankr. LEXIS 2011 (Bankr. W.D. Va., May 29, 2003) (stating that "Section 525 by its terms, even broadly construed, does not prohibit the IRS practice" of refusing to consider OICs submitted by taxpayers in bankruptcy but determining that 11 U.S.C. § 105(a) empowered court to "enter an order requiring the United States to process and consider the Debtor's offer in compromise of his tax liabilities"), aff'd, 303 B.R. 798 (W.D. Va. 2003) (finding that broad equitable powers of bankruptcy Courts under 11 U.S.C. § 105(a) were sufficient to require that IRS process and consider debtor's offer in compromise submitted as part of Chapter 11 plan; in effect, court subordinated IRS policy not to consider offers in compromise from debtors in bankruptcy, IRM § 5.8.3.4.1(B), which is not law, to the Bankruptcy Code, which is law), nonacquiescence, AOD 2004-03; 2004 AOD LEXIS 3 (Aug. 2, 2004); see also Holmes v. United States (In re Holmes), 298 B.R. 477, 483, 486 (Bankr. M.D. Ga. 2003) (finding that “[a]n offer-in-compromise is not a license, permit, charter, franchise, or other similar grant" but explicitly relying on § 105 to order the IRS to receive and consider the debtor's offer in compromise, such order being "necessary and appropriate to carry out the Congressional intent found in Chapter 11 of the Bankruptcy Code"), aff'd, 309 B.R. 824 (M.D. Ga. 2004). Accord In re Peterson, 317 B.R. 532, 534 (Bankr. D. Neb. 2004) (agreeing "completely with the analysis and the reasoning of Holmes").

Richard Gordon Stack

Richard Gordon Stack

Posted

Zaher (here's more): In contrast, several courts have expressed disagreement with the Mills and Macher decisions, primarily on the ground that 11 U.S.C. § 525(a) only prohibits certain types of discrimination against debtors, such as the denial, revocation, suspension or refusal to renew a license, permit, charter, franchise, or a similar grant, and that deciding whether to consider an OIC is a discretionary act for which mandamus relief is unavailable. See 1900 M Rest. Assocs. v. United States (In re 1900 M Rest. Assocs.), 352 B.R. 1, 307-09, 312-13 (D.D.C. 2006) (holding that discretion afforded IRS under 26 U.S.C. § 7122 extended not only to whether to accept or reject an offer, but also to how those offers would be processed; where such discretion exists, no clear duty to act is owed, which is required to obtain relief in nature of mandamus; an adequate alternative remedy was available to the debtor -- debtor can seek compromise of its tax liability through plan confirmation process), aff'd 352 B.R. 1 (D.D.C. 2006); In re Shope, 347 B.R. 270, 275-76 (S.D. Ohio 2006) ("Whatever discrimination Debtors believe they experienced due to the IRS policy [regarding refusal to consider the OICs of taxpayers in bankruptcy] it is not discriminatory treatment of the type contemplated in § 525"); In re Uzialko, 339 B.R. 579 (E.D.Pa. 2006) (IRS could not be compelled to process debtors' offer-in-compromise pursuant to 11 U.S.C. § 525(a) because its policy of not processing offers-in-compromise submitted by those in bankruptcy did not adversely impact any license, permit, charter, franchise, or similar grant; mandamus under 11 U.S.C. § 105(a) also was inappropriate as IRS owed no clear duty to debtors and its decision not to process offers-in-compromise lay solely within its discretion; further, an adequate alternative remedy existed for debtors to attempt to obtain compromised tax liability from IRS, i.e., plan confirmation process). I am not aware of any California authority which addresses the IRS's policy to not consider the OICs of taxpayers in bankruptcy. However, it appears that a case with favorable facts might provide a useful vehicle to advance the argument. Accordingly, the validity of the IRS policy, as set forth in Publication 656, is not definitively settled (although I inadvertently misspoke by saying that the IRS had changed its policy, due to the Mills decision).

Zaher Fallahi

Zaher Fallahi

Posted

Dear Richard: I am truly impressed with the wealth of your tax knowledge and feel proud to know you. I am hoping that I will meet you in one of the Los Angeles Bar Association Taxation Section events. Your legal argument may convince many judges. However, as a practitioner, I am curious whether you actually handle any OIC cases? If yes, how do you advise the clients in their reading of the booklet 656 page one with respect to their eligibility, and how do you advise them to fill out their forms 433-A, Section 8 or the form 433-B, Section 6, which specifically state that: Additional information IRS needs to consider settlement of your tax debt. If this Business is currently in a bankruptcy proceeding, the business is not eligible to Apply for an offer. If your answer is “yes” as to the BK question, do you attach your legal argument made here to the application and challenge the IRS’ position? Have you had any success with them? If yes, I would urge them to revise their forms, take these questions out and avoid wasting taxpayers’ time. Fortunately, none of the OIC clients I am handling are in BK. Again, I honestly admire your worthy contribution to this forum. You may respond to my personal e-mail; taxattorney@zfcpa.com . Many thanks.

Richard Gordon Stack

Richard Gordon Stack

Posted

Dear Zaher: Thanks for your kind words. To be totally honest, I don't do a whole lot of OICs. My background is in tax litigation. I worked for over 20 years as an AUSA in the Tax Division in Los Angeles, preceded by 3 years as a IRS Staff Attorney in LA. In those capacities, I became quite familiar with bankruptcy tax matters and your comment about the unavailability of OICs in bankruptcy triggered my memory of the Mills line of cases. While I would normally advise clients who wish to settle their tax debt via an OIC to do so outside of bankruptcy, in an appropriate case, it might be worthwhile to push the envelope and seek to compel the IRS to at least consider an OIC of a client who is in bankruptcy. The client, of course, would have to be willing and (financially) able to litigate the matter in the bankruptcy and/or district courts, since this issue is "virgin" territory in C.D.Cal. In all likelihood, the IRS would defend its policy barring the consideration of OICs of taxpayers in bankruptcy and it would be necessary to litigate the matter. If I were a betting man, my best estimation is that the courts in the C.D.Cal. would be more likely to embrace the line of cases exemplified by 1900 M Rest. Assocs. v. United States (In re 1900 M Rest. Assocs.), 352 B.R. 1, 307-09, 312-13 (D.D.C. 2006) rather than Mills. However, it would be worth arguing in the proper case. I also hope to meet you as well at a recent tax event. I don't make it to a lot of LA County Bar Association events but will probably be at the UCLA Tax Institute next month. Take care.

Zaher Fallahi

Zaher Fallahi

Posted

Dear Richard: Thanks for the information. You have great experience and I will keep you in mind for tax controversy issues. I am handling some 2012 OVDP cases now and work a KOVEL CPA as well. I have been doing taxes since 1979. Please send me your e-mail. I like to take you to lunch and get to know each other's practices better. My e-mail is taxattorney@zfcpa.com I look forward to meeting you. Zaher

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