Segment 2: Describing Your Discharge or Subordination

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Section 7 asks for either your basis for discharge or subordination.  The IRS will contact you if there are questions or your basis needs to be changed.

Let’s start with discharge. Check one of the following boxes on form 14135 that best describes your situation: 

If you own more property than is being sold and the property not being sold is worth twice your debt to the IRS, you would need to do three things.

First, check the top box in section 7 - 6325(b)(1)

Second, go to the bottom of Section 8, check the “attached box” and send copies of the deeds to the property you are not selling.

Third, go to section 9, and send appraisals for that same property.

Back to Form 14135, Section 7: If there is money left over after closing costs then you would check the second box 6325(b)(2)(A). On the other hand, if there is no money left over after closing costs, then check the third box 6325(b)(2)(B) as your basis for discharge. However, if there is money left over after closing costs, but your sale proceeds will be escrowed, such as for an auction or foreclosure sale, you would check the fourth box 6325(b)(3)

The last box 6325(b)(4) should be checked if you bought property with a federal tax lien still attached.

Time for our next tip:

If you need more details on how to determine your basis for discharge, publication 783 has examples.  Download the publication from IRS.gov or order it by calling 1-800-829-3676. 

Now let’s turn to subordination and its form 14134.  In Section 7 you would check the box on form 14134 that best applies to you.  If your re-finance or loan is to obtain money to apply to your tax debt, you would check the first box 6325(d)(1).

On the other hand, if your re-finance or loan will not provide money for your tax debt, but you can document that it will benefit both you and the IRS, then check the last box 6325(d)(2) in section 7.  If you do check this box, be sure to also check the box in Section 14, and include on a separate signed and dated piece of paper, how the loan will help pay your IRS debt. 

Here’s a tip:

If you need more examples of subordination, get Publication 784. You can download it from IRS.gov or order the publication at 1-800-829-3676.