One of the biggest concerns our students bring to our attention is, "What if there are IRS tax liens against the property?" This is always something that you will want to pay attention to if you're looking to take ownership of a property. It's always best to check for other liens and encumbrances on the property before buying the tax deed or tax lien (if you will potentially take ownership).
What's tricky about the IRS tax lien is that it isn't wiped out by foreclosure like most other liens. During the foreclosure process your real estate attorney will notify everyone with financial interest in the property, including the bank if there is a mortgage on the property, mechanic's liens, and IRS liens. Each of those companies that have interest in the property, have a certain amount of time to respond to the foreclosure notice including the IRS regarding the IRS tax lien. I wouldn't count on the IRS tax lien being wiped out, though. This is what the IRS website says concerning the release of IRS tax liens:
"If you are giving up ownership of property, such as when you sell your home, you may apply for a Certificate of Discharge. Each application for a discharge of a tax lien releases the effects of the lien against one piece of property. Note that when certain conditions exist, a third party may also request a Certificate of Discharge. If you're selling your primary residence, you may apply for a taxpayer relocation expense allowance. Certain conditions and limitations apply."
Just like every other lien placed on a property the lien was placed as security or payment for some debt. In this case, it is due to unpaid tax debt. Ouch... And when you're messing with Uncle Sam, it's a tough battle. Make sure to verify all other liens on the property before taking ownership. It may be more trouble than it's worth.
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