An IRS lien discharge is a certificate that removes a federal tax lien from one specific property, so it can be sold or transferred with clear title while the tax debt itself remains. Homeowners usually request it with Form 14135 well before closing, and the IRS decides how much of the sale proceeds, if any, it must receive.
If a title report has turned up a federal tax lien on a home you are trying to sell, call (415) 754-0115 to schedule your free consultation, or reach us through the contact page so an attorney can look at the lien and your timeline.
Discharge, release, withdrawal or subordination
These terms are often used interchangeably, but they mean different things:
- Release ends the lien entirely, usually after the debt is paid or the collection period expires. Our guide on how to remove an IRS tax lien covers releases and withdrawals.
- Withdrawal removes the public Notice of Federal Tax Lien as if it had not been filed, in limited situations.
- Subordination keeps the lien in place but lets another creditor, such as a refinance lender, move ahead of it.
- Discharge removes the lien from one property so the sale can close. The lien still attaches to your other property and rights to property.
For a sale, discharge is usually the tool that matters.
How an IRS lien discharge works in a home sale
The federal tax law provides several grounds for discharge. In a typical sale, the main ones are:
The IRS is paid its share of the proceeds
The IRS can discharge the property when it receives the value of its lien interest from the sale. Escrow pays off senior liens, such as the first mortgage, and then pays the IRS the amount it is entitled to. The rest of the federal balance stays on your account.
The IRS interest has no value
If the senior mortgages and other prior liens are larger than the home's value, the IRS interest may be valueless. In that case the IRS can issue a discharge without receiving anything from the sale, often in a short sale. Our article on the short sale process in California explains how those sales are approved.
Remaining property is worth enough
The IRS may also discharge one property if the property still subject to the lien is worth at least twice the federal tax liability plus any other liens on that remaining property. This ground comes up less often in a home sale.
Proceeds held in escrow
Where there is a dispute over who is entitled to the proceeds, the IRS may allow the sale to close with the disputed funds held in escrow until the question is resolved.
The Form 14135 application and timing
A discharge request is made with Form 14135, Application for Certificate of Discharge of Property from Federal Tax Lien. IRS guidance in Publication 783 asks that the application be submitted at least 45 days before the sale or settlement date. Waiting until the week of closing is one of the most common ways a sale gets delayed.
A complete application generally includes:
- A copy of the purchase agreement and a preliminary title report
- A recent appraisal or other evidence of the property's value
- A proposed closing statement showing how the proceeds will be distributed
- Payoff statements for the mortgage and any other senior liens
- A copy of the Notice of Federal Tax Lien
The owner usually files the application, but other parties with an interest in the property, such as a buyer or a lender, can also apply in some situations. Whoever files, the figures on the closing statement should match the purchase agreement and the payoff letters exactly, because the IRS compares them line by line. If the sale terms change after the application is filed, such as a price reduction or a new closing date, the IRS should be updated promptly.
The IRS reviews the application, may ask for more information and then issues a conditional commitment. The certificate itself is usually issued once the IRS receives the required payment from escrow.
What California sellers should watch for
- State liens are separate. A California Franchise Tax Board lien needs its own release or payoff, explained in our article on FTB tax lien release.
- Valuation disputes. If the IRS believes the price is below market, it may question the discharge amount, so supporting the value matters.
- Coordination with escrow. The title company, real estate agents and the IRS need to work from the same figures and closing date.
- Other collection activity. A pending sale does not by itself pause levies on wages or bank accounts.
The Somal Law Firm, led by attorney Bob Somal in Pleasanton, assists homeowners and small business owners in the Tri-Valley, Alameda and Contra Costa Counties with IRS disputes. Through our tax law practice, an attorney can review your situation, prepare the discharge application and communicate with the IRS and escrow while the sale is pending.
Frequently asked questions
Does an IRS lien discharge wipe out my tax debt?
No. Discharge frees one property from the lien. Any balance not paid from the sale remains owed and can still be collected through other means, unless it is resolved another way.
How long does the IRS take to process a discharge request?
Processing time varies, which is why IRS guidance asks for the application at least 45 days before closing. Missing documents can extend the review.
Can I sell my house with a federal tax lien without a discharge?
Title companies generally will not close a sale with an unresolved federal tax lien on the property. The lien usually has to be paid, released or discharged at closing.
Is a discharge available in a short sale?
Often, yes. If the mortgage balance exceeds the sale price, the IRS interest may have no value, and the IRS can discharge the lien without being paid from the sale.
A federal tax lien does not have to derail a sale if it is handled early. Call (415) 754-0115 to schedule your free consultation with Bob Somal, or use the contact page. We will review the title report, the lien and your closing date and explain the steps involved.
Attorney Advertising. This article is general legal information for Bay Area residents, not legal advice, and does not create an attorney–client relationship. Every situation is different — please consult a licensed attorney about your specific circumstances.