What are my next steps?
When a NFTL is filed because you owe taxes, then you must decide if a certificate of subordination is right for your situation.
Does my loan qualify as a Purchase Money Mortgage (PMM) or Purchase Money Security Interest (PMSI)?
Subordination isn’t needed if you are buying real property (like a home) or personal property (like a boat), because your loan can qualify as PMM or PMSI.
- The loan must meet local laws.
- The newly purchased property guarantees the loan. If the loan doesn’t get paid, then the bank can claim the property.
The bank loan moves ahead of the government’s claim to the property when the purchase price equals the loan amount.
See Publication 785, Purchase Money Mortgages, Purchase Money Security Interests, and Subordination of the Federal Tax Lien for more information.
Does my loan qualify as Equitable Subrogation?
Subordination isn’t needed when state law allows one person in place of another. This is called equitable subrogation. This can happen when a bank pays off a loan that was ahead of the NFTL and the new loan takes the old loan’s place in order to protect the bank’s claim on the property. This can include refinancing a mortgage.
- A Certificate of Subordination may be needed, if the bank wants the Certificate of Subordination recorded in public records to protect their claim on the property.
Certificate of Subordination
If your situation doesn’t meet PMM, PMSI, or equitable subrogation, then you may qualify under one of the criteria for subordination.
Criteria for Subordination
- IRS is paid an amount equal to the amount shown on the NFTL.
- The value of the property is equal to, or more than the amount shown on the NFTL.
- The IRS will be able to collect the amount shown on the NFTL after the subordination.
The IRS doesn’t have to issue a certificate of subordination, but it can when it is in the best interest of the government.
Do I need to apply for a certificate of subordination if a third-party collects my business’ accounts receivable?
When a third-party collects a business’ accounts receivable, it is called a factoring agreement. The third-party steps into the shoes of the business to collect money owed to the business. The third-party collects the money owed to the business and takes a portion as a fee and pays the remaining amount to the IRS.
To subordinate a factoring agreement:
- The third party must apply for a certificate of subordination of the NFTL.
- An installment agreement must be requested along with the application for subordination. See Form 433-D, Installment Agreement
- This certificate of subordination has a time limit.
- It can be no longer than 1-year for an out-of-business taxpayer and
- no longer than 90 calendar days for an in-business taxpayer.
- A new application for subordination must be submitted when the subordination time limit has ended.
To apply for a certificate of subordination, submit Form 14134, Application for Certificate of Subordination of Federal Tax Lien. See Publication 784, How to Apply for a Certificate of Subordination of Federal Tax Lien and Publication 785 for more information.
The IRS will notify you by letter if your application was accepted or denied.
If your application is denied, you can request a conference with the IRS Independent Office of Appeals using a Form 9423, Collection Appeal Request. See Publication 1660, Collection Appeal Rights, for full explanation of the Collection Appeal Program.
There are other types of lien relief the IRS offers. See Lien Relief for more options.