Getting a Certificate of Discharge So You Can Sell a Property With an IRS Lien on It

A title search comes back with a Notice of Federal Tax Lien on it and the deal stops moving. The buyer’s lender will not fund, the title company will not insure, and the closing date on the agreement of sale keeps getting closer. That is the situation Form 14135 exists for, and most people find it far too late in the process. Here is what the form does, which legal ground you are asking the IRS to act under, and what the package has to contain before an Advisory examiner will look at it.

What a Certificate of Discharge Does

A certificate of discharge removes the federal tax lien from one specific piece of property so that property can be sold with clear title. The tax debt does not go away and the lien stays attached to everything else you own. You apply on Form 14135, and the IRS grants it under one of the five grounds in Internal Revenue Code section 6325(b).

That distinction is the whole point. It is also the part people lose track of. Discharge is property-specific relief. It is not forgiveness, it is not a release, and it does not settle anything.

When Discharge Is the Right Remedy

You are selling and the lien is in the way

The classic case is a sale under agreement with a lien recorded against the seller. Nobody will close over an unresolved federal lien, so the transaction needs the lien lifted from that parcel before settlement. If you want the background on how a lien attaches in the first place and what it does to a transaction, read our guide to selling or refinancing with an IRS lien attached. This post assumes you are already past that question and into the application.

The sale will not clear the whole balance

Plenty of sellers assume discharge is only available when the proceeds pay the IRS in full. It is not. Section 6325(b)(2)(B) exists precisely for the property the government has no equity in, where senior debts already exceed what the property will fetch. Underwater property is a reason to apply, not a reason to give up.

When another remedy fits better

Discharge is one of three tools and picking the wrong one wastes weeks. If you are refinancing rather than selling, subordination is the remedy you want, and we cover it in a separate post this month. If the balance is already resolved and the problem is the public record, withdrawal is the answer, which we set out in our breakdown of how Form 12277 gets a lien notice off public record. Our discharge and release of tax liens service page sets out all four remedies side by side with the code sections they run on.

How to Request a Discharge

Picking the ground under section 6325(b)

You have to tell the IRS which provision you are applying under, and the choice drives everything else in the package. Publication 783 lists them. Section 6325(b)(1) applies where the property still subject to the lien is worth at least twice the tax liability plus any encumbrance that predates the lien filing. Section 6325(b)(2)(A) applies where the IRS is paid the value of its interest out of the sale proceeds. Section 6325(b)(2)(B) applies where the government’s interest is worthless. Section 6325(b)(3) applies where the proceeds go into escrow subject to the same claims in the same priority. Section 6325(b)(4) is the third-party route, where the owner is not the taxpayer and posts a deposit or bond.

If the IRS disagrees with the provision you selected, it will tell you why in writing. That is better than a rejection, but it costs time you may not have.

Working through Form 14135

The form itself asks for the taxpayer as named on the lien notice, the lien numbers, a description of the property, the basis for the discharge, the proposed sale terms, and the parties to the transaction. None of that is difficult. What decides the outcome is section by section consistency. The value you state has to match the appraisal you attach, the payoff figures have to match the title report, and the settlement costs you claim have to match the estimated settlement statement. An examiner who finds two different numbers for the same thing sends the file back.

The appraisals, title report and payoff figures that go with it

A complete package carries a copy of the sale agreement, a professional appraisal by a disinterested third party, a title report showing every recorded encumbrance and its priority, payoff statements for the senior debts, and an estimated settlement statement. Under section 6325(b)(2)(B) and section 6325(b)(3) the IRS also wants the proposed escrow agreement. This is the part that separates an application that gets decided from one that gets a request for more information three weeks later.

Where it goes and how long it takes

Completed applications go to IRS Advisory Consolidated Receipts in Florence, Kentucky, at the address printed in Publication 783, and that publication asks you to submit at least 45 days before the transaction date so there is time for review, determination and delivery of the certificate. Forty-five days before closing is the standard, not the target. Files that arrive inside that window get worked, but the leverage is gone and every follow-up question eats a day you do not have.

What Happens at Settlement

If the IRS approves

You receive the certificate and it goes to the title company as part of the closing package. Under the payment grounds, the certificate is conditioned on the IRS actually receiving what the determination says it gets, so the money moves at settlement and the discharge takes effect against that parcel.

If it does not

A denial is not the end of it. Advisory will state the reason, and the reason is usually valuation or an incomplete package rather than a legal bar, which means it can often be cured and resubmitted. Where the dispute is genuinely about the government’s interest, there are appeal routes, and our IRS appeals practice is where those go. The one thing that cannot be cured is a closing date that has already passed.

What a Discharge Will Not Do for You

It will not reduce the balance. It will not stop collection on your other assets. It will not remove the lien from the rest of your property, and it will not take the Notice of Federal Tax Lien off the public record, which is a separate application entirely. It also does nothing about the statutory collection period, and if that is the question you are actually asking, see how long a federal tax lien lasts.

We say this plainly because sellers regularly walk out of a successful discharge believing the problem is solved. The property is clear. The debt is not.

Bring Us the Closing Date, Not Just the Lien Notice

The single most useful thing a client can hand us is the agreement of sale with the settlement date on it, because that date is what everything else works backwards from. We build these packages, we know which Advisory office the file belongs with, and we escalate when a closing is at risk. You can see how that work turns out on our published case results, including a King of Prussia sale carrying a $120,000 lien that closed on time. Outcomes depend on the facts of each matter and no result predicts another.

If a lien is sitting between you and a settlement date, speak to a tax attorney about your closing.

FAQ

What are the instructions for completing IRS Form 14135?

The instructions are in Publication 783, which is published with the form. They walk through each of the fourteen sections, tell you which attachments each discharge ground requires, and give worked examples for the valuation tests. Read the instructions for the specific ground you are applying under rather than the form as a whole, because the attachment list changes with the provision.

What is IRS form 14135?

It is the Application for Certificate of Discharge of Federal Tax Lien. Filing it asks the IRS to remove its lien from one named property, most often so a sale can close. It is not a settlement offer and it does not reduce what you owe.

How do I request a federal tax lien discharge?

Complete Form 14135, select the section 6325(b) ground that fits your facts, attach the appraisal, title report, payoff statements and estimated settlement statement, and mail the package to IRS Advisory Consolidated Receipts. Publication 783 asks for it at least 45 days ahead of the transaction date.

Can I go to an IRS office to get a lien released?

Release and discharge are different things, and neither is handled over a counter. A release happens when the liability is satisfied or becomes unenforceable, and the IRS issues it on its own records. A discharge has to be applied for in writing through Advisory. A Taxpayer Assistance Center can confirm what you owe, but it cannot issue either certificate.