Tax lien subordination is a process in which the IRS agrees to allow a federal tax lien to be placed in a lower priority position relative to other liens or loans. This allows taxpayers to refinance or sell property even if they still owe unpaid taxes. A federal tax lien typically takes precedence over other creditors, but through subordination, the IRS allows another creditor to take priority.
Taxpayers may request lien subordination if they:
- Want to refinance a mortgage but have a tax lien on their property.
- Are attempting to sell property to resolve tax debt or other financial obligations.
To request a lien subordination, taxpayers must file Form 14134 (Application for Certificate of Subordination of Federal Tax Lien) and provide evidence that subordination will help them resolve their tax debt more effectively.
Subordination does not remove the lien or eliminate the tax debt but simply moves the lien to a lower priority. The IRS agrees to this arrangement if it believes it will eventually lead to the full payment of the tax debt.