IRS liens have a unique relationship with Florida’s homestead protections. While the Florida Constitution provides strong protections against forced sale of homestead property by creditors, federal tax liens issued by the IRS are an exception due to the Supremacy Clause of the U.S. Constitution. The following provides a closer look:
IRS Liens and Homestead Protections
- Supremacy of Federal Law:
- Federal law supersedes state homestead exemptions. This means the IRS can enforce a lien on homestead property in Florida despite the state’s constitutional protections.
- Creation of the Lien:
- When a taxpayer owes federal taxes and fails to pay after receiving a demand, the IRS automatically creates a federal tax lien on all of the taxpayer’s property, including their homestead property.
- If heirs or remaindermen have pre-existing IRS liens, the liens may also attach to their inherited interest in the homestead.
- The lien attaches to the property and remains in place until the tax debt is fully paid or otherwise resolved.
- Enforcement of the Lien:
- The IRS has the authority to enforce the lien through foreclosure or forced sale of the homestead property, but such actions are relatively rare and require strict adherence to federal procedures.
- The IRS must consider the taxpayer’s circumstances, and enforcement is typically a last resort, often following attempts to negotiate payment plans or settlements.
What Happens to the Lien at Death?
- Lien Persists:
- IRS liens remain attached to the homestead property after the taxpayer’s death. If heirs inherit the property, the lien continues to encumber it.
- Heirs may need to satisfy the lien (e.g., by paying the outstanding tax debt) before they can sell or refinance the property.
- Probate and IRS Liens:
- The federal tax lien does not distinguish between probate and non-probate property. It applies to all assets the decedent owned, regardless of how they were titled.
Strategies to Address IRS Liens on Homestead Property
- Settle Tax Debt:
- Paying the outstanding tax liability removes the lien. This can be achieved through:
- Installment Agreements: Regular payments to the IRS.
- Offer in Compromise (OIC): Negotiating a reduced lump-sum payment to settle the debt.
- Lien Discharge or Subordination:
- Discharge: If heirs intend to sell the property, they can request a discharge of the lien for the sale proceeds. The lien amount will be paid from the sale, and the IRS removes the lien.
- Subordination: If refinancing is needed, subordination allows the lien to remain secondary to a new loan, facilitating the transaction.
- Estate Planning to Avoid Liens:
- Trusts: Placing property into a properly structured trust may provide some insulation from IRS liens in specific circumstances (though not guaranteed if the lien attaches before transfer).
- Tax Resolution Planning: Addressing tax liabilities early can prevent liens from attaching to the property.
Key Takeaways
- Florida’s homestead protections do not exempt properties from IRS liens.
- Heirs inheriting homestead property encumbered by an IRS lien must address the lien before selling or refinancing.
- Proactive tax and estate planning, combined with expert legal and tax guidance, can help mitigate complications arising from federal tax liens on homestead property.
If you are dealing with an IRS lien or planning your estate to protect homestead property, consult a qualified tax attorney or experienced estate planner to explore tailored strategies.
The foregoing is a brief and very general overview of the topic and the need for specific and experienced legal and tax advice is emphasized.
If you have any additional questions regarding the foregoing or have any legal issue or concern, please contact the law firm of CASERTA & SPIRITI in Miami Lakes, Florida.