Real Estate Investor Whose IRS Lien Was Blocking a Property Sale
Educational Example — Results Vary. This is a composite, illustrative scenario for educational purposes only. It is not a real client, not a testimonial, and not a promise of any outcome. Every tax situation is different; consult a qualified professional about your own circumstances.
Situation
A small-scale real estate investor owed about $81,000 from capital gains on prior flips where taxes weren't set aside. The IRS filed a federal tax lien. He then went under contract to sell a rental property — but the title company's search turned up the lien, and the closing stalled because the IRS's claim attached to the very property being sold.
The IRS Problem
A federal tax lien attaches to all property the taxpayer owns, real estate included. The buyer's title insurer would not issue a clean policy, and the closing could not proceed with the IRS claim riding on the property. The investor needed the lien lifted from this specific parcel without necessarily paying the entire $81,000 up front.
Risks if Ignored
- A collapsed sale and a lost buyer if the lien wasn't cleared before closing.
- Continued accrual of penalties and interest on the unpaid balance.
- Escalation to levies on rents or accounts if collection stalled.
- Carrying costs and missed opportunity on a property he could not transfer.
Based on: A federal tax lien attached to a property under contract to sell
A federal tax lien attaches to all of your property, including real estate. A title company will not close a sale with the IRS's claim still attached unless it is discharged or paid from proceeds.
- Bank levy authority now exists.
- A lien may hit your credit.
- Your Offer in Compromise window is narrowing.
Resolution Path
- 1Confirm the lien and balance, and the equity and net proceeds expected from the sale.
- 2Apply for a Certificate of Discharge (Form 14135) well ahead of the closing date.
- 3Direct the IRS's share of the sale proceeds to it at closing through the escrow agent.
- 4Close the sale with clean title once the discharge is issued.
- 5Resolve any remaining balance through a payment plan based on ability to pay.
Key Lessons
- A lien attaches to real estate and will stop a closing until it's discharged or paid.
- A Certificate of Discharge removes the lien from one property, not your whole account.
- Apply early — discharge requests take time and closings run on tight schedules.
- Setting aside tax on each flip prevents capital-gains debt from becoming a lien.
How can you sell a property when the IRS has a lien on it?
You apply for a Certificate of Discharge (Form 14135), which removes the lien from one specific property so the sale can close. The IRS is typically paid from the sale proceeds at closing, up to its interest. The lien can remain on your other assets, but the discharged property transfers free of it.
Relevant Resolution Options
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See My IRS OptionsFrequently Asked Questions
What is a Certificate of Discharge?
It removes the federal tax lien from a specific piece of property so it can be sold or refinanced with clear title. The IRS is generally paid from the proceeds. Your other assets can remain subject to the lien.
How long does a discharge take?
The IRS asks for the application well before closing — often around 45 days. Because closings are time-sensitive, applying as early as possible is important to avoid losing the sale.
Do I have to pay the whole balance to sell?
Not necessarily. With a discharge, the IRS is typically paid its interest from the sale proceeds, and any remaining balance can be handled through a separate payment arrangement.
Romy Cruz, EA
Licensed Enrolled Agent
Licensed Enrolled Agent (EA) · 15 Years IRS Tax Resolution
Romy helps individuals and businesses resolve IRS tax issues including liens, levies, installment agreements, penalty relief, and offers in compromise.
Content is reviewed periodically for accuracy and updated to reflect current IRS guidance and regulations.