CHANGES TO THE NOTICE PROCEDURE FOR THE IRS IN NONJUDICIAL FORECLOSURE SALES

Now that real property foreclosures1 seem to be back on the table for lenders following the pandemic, it is a good time to review some small changes to IRS procedures for sending notice of a pending foreclosure to the IRS.

For those attorneys, like myself, who have been sending foreclosure notices for years to the Internal Revenue Service at its Special Procedures address on Broadway in Nashville, it is time to change that routine. For those of you reading this article who have no idea what I am referring to, it is simple; if you are conducting a foreclosure sale involving an IRS tax lien encumbering the property to be sold, notice to the IRS must be sent so that it is received2 by the IRS at least 25 days3 prior to the date of the foreclosure sale. This applies to tax liens recorded more than 30 days prior to the date of the sale.4 Otherwise, the sale will not extinguish the tax lien. It is important to note that the filing of a Federal Tax Lien in a Register of Deed’s office constitutes notice of a lien held by the IRS that applies to both real property and personal property located in the county of recordation.

In 2022, the IRS updated its publication regarding “Nonjudicial Sales of Property and Application for Consent to Sale” (the “Publication”).5 The Publication is short: only four (4) pages long. With the updated Publication, the IRS also updated its form for “Notice of Nonjudicial Sale of Property.”6

There are only 4 steps to the process: (1) the notice to the IRS must be in writing; (2) the notice must either be submitted to the IRS by registered or certified mail or by the use of a “personal service” such as Federal Express or UPS; (3) the notice must be sent to the correct address; and (4) the notice must contain the information required by the IRS publication.

The first two steps above are self-explanatory and need no further comment other than to state that the date of receipt by the IRS from an overnight delivery service is the actual delivery date, not the date of sending. As to (3) above, the proper address for the notice is in a separate IRS publication.7 The new address to use for the notice is: Internal Revenue Service, Advisory Consolidated Receipts, 7940 Kentucky Drive, Stop 2850F, Florence, KY 41042.

The final step (4 above) details the information required to be contained in the notice (or attached to the notice) to the IRS. There are five (5) requirements listed in the Publication. Those are as follows: (1) the name, address, phone and facsimile numbers of the person submitting the notice; (2) a copy of the recorded Notice of Tax Lien8 or, alternatively, you are allowed to provide the information that is contained in the Notice of Tax Lien – the name of the IRS District Office where the notice was prepared and signed, the name and address of the taxpayer and the date and place where the notice was filed; (3) a detailed description, including the physical address and location of the property to be sold (and, if available, a copy of an abstract of title); (4) the date, time, place and terms of the sale of the property; and (5) the approximate amount of the principal obligation, including interest due, and a complete description of any expenses associated with the sale (legal expenses, publication expenses, selling costs, maintenance costs, etc.).

With each of the requirements detailed in the preceding paragraph, there are also optional pieces of information that can be included in your notice. An example of an optional provision relating to the Notice of Tax Lien would be to provide the social security number of the taxpayer with the first 5 digits shown by xxx-xx-1234 (although this seems unnecessary since this same information will be shown on the face of the Federal Tax Lien).

There is yet another form to use if you seek to have the IRS consent to the sale of property free of a federal tax lien.9

If a notice to the IRS is inadequate, the District Director is required to provide written notice to the foreclosing party more than five days prior to the date of the foreclosure sale.10

It is also important to note the IRS lien in the actual foreclosure notice that goes to the newspaper for publication and you must remember to prepare your Trustee’s Deed to include the IRS right of redemption when there is a tax lien on the property being sold at a foreclosure sale.

While this article covers only non-judicial sales of real property, these requirements are also applicable with respect to the sale of personal property and there are additional requirements if the sale involves personal property, including specific requirements relating to sales of perishable personal property.

1 Tennessee is a non-judicial foreclosure state.

2 Receipt is the key; not the date of your mailing to the IRS.

3 26 U.S.C. § 7425(c)(1).

4 26 U.S.C. § 7425(b).

5 Publication 786.

6 Form 14497.

7 Publication 4235.

8 Form 668(Y)(c).

9 Form 14498.

10 Glasgow Realty, Inc. v. Withington, 345 F. Supp.2d 1025 (E.D. Mo. 2004).

Hello My Name Is

By: Jennifer Franklyn Realty Trust Group, LLC