When the Internal Revenue Service files a tax lien against you, it is reported on your credit report. This makes it difficult to obtain lending to satisfy your debt. If you otherwise have positive credit, a lender may fund your loan request if the IRS approves a subordination of the lien. A lien subordination means the IRS will take a step down in priority to allow another lender to take the senior lien position. The IRS will consider the request if the loan proceeds will fully satisfy the tax debt. Typically, the best applicant candidates are homeowners with sufficient home equity to satisfy the tax debt.
Determine the payoff amount of the lien. The actual amount that needs to be paid may differ from what is reported on your credit report. Contact the IRS centralized lien unit and ask for a payoff letter.
Prepare application for subordination (Form 14134 – see Resources). Plan to allow at least 45 days for the application to be reviewed and processed by the IRS.
Attach documents to your application and explain why the subordination is in the best interest of the IRS. For example, attach the proposed loan agreement and a letter demonstrating how you will full pay the tax debt through the subordination.
Submit your application to the appropriate IRS advisory group. The advisory group processes all requests for lien subordination. The address to send your application depends on where the lien was filed. Reference IRS publication 4235 (see Resources) and determine which address to use. If you have not heard from the advisory office in a reasonable amount of time, call the phone number listed for assistance.
With a background in taxation and financial consulting, Alia Nikolakopulos has over a decade of experience resolving tax and finance issues. She is an IRS Enrolled Agent and has been a writer for these topics since 2010. Nikolakopulos is pursuing Bachelor of Science in accounting at the Metropolitan State University of Denver.