An Internal Revenue Service (IRS) lien gives the government a legal claim to your business assets when you owe back taxes. The lien attaches to all business property and rights to business property, including accounts receivable. While this can complicate a sale, it does not necessarily prevent one.
Understanding these liens and how they work is crucial when you are planning to sell your business or make a transaction more effectively.
Selling with an active lien
The transfer of property subsequent to attachment does not affect the lien. This means the IRS maintains its claim even after ownership changes hands.
Because the government’s claim stays with the property, many buyers prefer a clear title. That makes it essential to resolve the lien before closing.
Options moving forward
Business owners facing this situation have several paths available to resolve the lien:
- Certificate of Discharge: A discharge removes the lien from a specific property so the sale can proceed. This approach often applies when sale proceeds will reduce the tax debt or support the IRS’s collection efforts.
- Payment from proceeds: The simplest solution is to use the sale proceeds to pay off the lien during closing. The escrow company typically handles this distribution.
- Subordination: This keeps the lien in place but allows other creditors to take priority. This can make financing or completing a sale easier by improving the property’s appeal to buyers.
Once you identify the option that fits your circumstances, the next step is to work with the IRS to obtain approval and complete the transaction.
Applying for a discharge
You can request a discharge by submitting Form 14135 to the IRS well before the sale or closing date, ideally about 45 days in advance, to give the agency time to review your materials and approve the release. Filing early gives the IRS time to review your application and verify the documentation, which typically includes appraisals, sale contracts and details on how the proceeds will be distributed.
Preparing for a smooth transaction
IRS liens attach to nearly all business property, giving the government broad reach over your assets. Still, having a lien does not make a sale impossible.
The discharge process exists to allow sales that help resolve tax debts. When structured carefully, these transactions can benefit both you and the IRS by converting property into funds that reduce your balance.
Partnering with professionals familiar with IRS procedures can make the process much smoother. They can help you prepare a complete application, gather required documentation and ensure everything follows the proper steps.