Q: Hi, I was divorced two or three years prior to the settlement of assets. The house was "inner spousal transferred" to me with an IRS lien attached with my ex's name only. I had always filed separately. He had a business and it stemmed from that, not in my name. I have talked with an IRS agent and was told it is not my debt. The lien was put on before the settlement. I have refinanced two times since the transfer took place. We are trying to take care of some settlement issues regarding his child support arrears and house money I owe him (house money I owe is from settlement). We would like to zero the two issues out so we don't owe each other but I do not want to be held liable for his liens. How do liens work when it is against an individual? I am at a loss. Please advise. Thank you Debi, Citrus Heights, CA
There are two issues here. First, offsetting debts between ex-spouses. Second, handling a federal tax lien attached to a property interest received in the settlement. I'll leave the first question for family law experts.
Federal tax liens arise when a party has a federal tax obligation what remains unpaid after the IRS has issued a demand for payment. It attaches to all of the taxpayer's property, including the taxpayer's interest in community property. It is the government's way of securing payment of the tax debt. It gives the IRS the right to as much of the sales proceeds as is available to apply to the unpaid tax obligation.
There are two basic options for freeing property from a tax lien. The first is to obtain a release of the lien. This is usually happens as a result of payment of the tax obligation. When the IRS receives full payment, they issue release the lien and issue a notice of the release. A release can also be obtained as a result of posting a bond with the IRS securing payment of the tax debt. If the tax debt becomes unenforceable, such as due to the passing of the 10 year statute for collecting unpaid taxes, the lien will be released.
The second option is to obtain a discharge of the lien. This can be done, as in the case of a release, by paying the debt. A discharge can be obtained if the value of other property of the taxpayer under lien, net of other obligations, exceeds two times the amount of the unpaid taxes. Also, a discharge can be obtained in the if the IRS's interest in the property becomes worthless. Finally, a third party or co-owner can obtain a certificate of discharge by posting a deposit or bond with the IRS. This requires a court proceeding, which means additional cost.
In short, there is no easy way to obtain a release or discharge of a federal tax lien while the tax remains unpaid. Practically, other than payment, the only way to free a piece of property from a tax lien is to provide other acceptable security to the IRS. Waiting for the statute of limitations to pass is risky, since the IRS can sieze property and sell it to satisfy the tax debt.