determined by establishing the balances due until the day of closing on all encumbrances recorded ahead of the IRS’ lien. Frequently, this will include the first and possibly the second mortgage and any unpaid real estate taxes, regardless of whether there has been a tax sale and any judicial liens. In addition, closing costs should be included, such as loan origination fees, points, agent’s commissions, attorney’s fees, and fees for recording all the relevant information. The sale price, less the playoffs for prior encumbrances and closing costs, determines the amount the IRS will demand in exchange for a Certificate of Discharge. Sometimes, a disagreement will arise as to what exactly constitutes a “prior encumbrance” or, more likely, the amount of the closing costs. For instance, while the IRS will frequently allow 6-7% agent’s commissions, it won’t allow more than $750 in attorney’s fees— regardless of the complexity of the transaction or the amount of work done by the attorney. After the IRS reviews the petition, it will issue a letter of commitment, either Pattern Letter P-402 or P-403. P-402 will be issued under Internal Revenue Code (IRC) section 6325(b) (2) (B) when it’s determined that there’s no equity in the property, which implies that the IRS’ interest in the property is valueless. P-403 will be issued under IRC section 6325(b) (2) (A) when it’s determined that the IRS’ interest in the property is worth a specific dollar amount. In the first case, the IRS promises to issue a Certificate of Discharge upon proof that the taxpayer has been divested of interest in the property. In the second case, the IRS pledges to issue a Certificate of Release upon evidence of divestiture of the taxpayer’s interest as well as the receipt of the specified amount by certified cashier’s check. In many cases, this letter of commitment
45
Powered by FlippingBook