[Code of Federal Regulations]
[Title 26, Volume 18]
[Revised as of April 1, 2004]
From the U.S. Government Printing Office via GPO Access
[CITE: 26CFR301.6325-1]

[Page 261-266]
 
                       TITLE 26--INTERNAL REVENUE
 
    CHAPTER I--INTERNAL REVENUE SERVICE, DEPARTMENT OF THE TREASURY 
                               (CONTINUED)
 
PART 301_PROCEDURE AND ADMINISTRATION--Table of Contents
 
                               Collection
 
Sec. 301.6325-1  Release of lien or discharge of property.

    (a) Release of lien--(1) Liability satisfied or unenforceable. Any 
district director may issue a certificate of release of a lien imposed 
with respect to any internal revenue tax, whenever he finds that the 
entire liability for the tax has been satisfied or has become 
unenforceable as a matter of law (and not merely uncollectible or 
unenforceable as a matter of fact). Tax liabilities frequently are 
unenforceable in fact for the time being, due to the temporary 
nonpossession by the taxpayer of discoverable property or property 
rights. In all cases the liability for the payment of the tax continues 
until satisfaction of the tax in full or until the expiration of the 
statutory period for collection, including such extension of the period 
for collection as may be agreed upon in writing by the taxpayer and the 
district director.
    (2) Bond accepted. The district director may, in his discretion, 
issue a certificate of release of any tax lien if he is furnished and 
accepts a bond that is conditioned upon the payment of the amount 
assessed (together with all interest in respect thereof), within the 
time agreed upon in the bond, but not later than 6 months before the 
expiration of the statutory period for collection, including any period 
for collection agreed upon in writing by the district director and the 
taxpayer. For provisions relating to bonds, see sections 7101 and 7102 
and Sec. Sec. 301.7101-1 and 301.7102-1.

[[Page 262]]

    (b) Discharge of specific property from the lien--(1) Property 
double the amount of the liability. (i) The district director may, in 
his discretion, issue a certificate of discharge of any part of the 
property subject to a lien imposed under chapter 64 of the Code if he 
determines that the fair market value of that part of the property 
remaining subject to the lien is at least double the sum of the amount 
of the unsatisfied liability secured by the lien and of the amount of 
all other liens upon the property which have priority over the lien. In 
general, fair market value is that amount which one ready and willing 
but not compelled to buy would pay to another ready and willing but not 
compelled to sell the property.
    (ii) The following example illustrates a case in which a certificate 
of discharge may not be given under this subparagraph:

    Example. The Federal tax liability secured by a lien is $1,000. The 
fair market value of all property which after the discharge will 
continue to be subject to the Federal tax lien is $10,000. There is a 
prior mortgage on the property of $5,000, including interest, and the 
property is subject to a prior lien of $100 for real estate taxes. 
Accordingly, the taxpayer's equity in the property over and above the 
amount of the mortgage and real estate taxes is $4,900, or nearly five 
times the amount required to pay the assessed tax on which the Federal 
tax lien is based. Nevertheless, a discharge under this subparagraph is 
not permissible. In the illustration, the sum of the amount of the 
Federal tax liability ($1,000) and of the amount of the prior mortgage 
and the lien for real estate taxes ($5,000+$100=$5,100) is $6,100. 
Double this sum is $12,200, but the fair market value of the remaining 
property is only $10,000. Hence, a discharge of the property is not 
permissible under this subparagraph, since the Code requires that the 
fair market value of the remaining property be at least double the sum 
of two amounts, one amount being the outstanding Federal tax liability 
and the other amount being all prior liens upon such property. In order 
that the discharge may be issued, it would be necessary that the 
remaining property be worth not less than $12,200.

    (2) Part payment; interest of United States valueless--(i) Part 
payment. The district director may, in his discretion, issue a 
certificate of discharge of any part of the property subject to a lien 
imposed under chapter 64 of the Code if there is paid over to him in 
partial satisfaction of the liability secured by the lien an amount 
determined by him to be not less than the value of the interest of the 
United States in the property to be so discharged. In determining the 
amount to be paid, the district director will take into consideration 
all the facts and circumstances of the case, including the expenses to 
which the Government has been put in the matter. In no case shall the 
amount to be paid be less than the value of the interest of the United 
States in the property with respect to which the certificate of 
discharge is to be issued.
    (ii) Interest of the United States valueless. The district director 
may, in his discretion, issue a certificate of discharge of any part of 
the property subject to the lien if he determines that the interest of 
the United States in the property to be so discharged has no value.
    (iii) Valuation of interest of United States. For purposes of this 
subparagraph, in determining the value of the interest of the United 
States in the property, or any part thereof, with respect to which the 
certificate of discharge is to be issued, the district director shall 
give consideration to the value of the property and the amount of all 
liens and encumbrances thereon having priority over the Federal tax 
lien. In determining the value of the property, the district director 
may, in his discretion, give consideration to the forced sale value of 
the property in appropriate cases.
    (3) Discharge of property by substitution of proceeds of sale. A 
district director may, in his discretion, issue a certificate of 
discharge of any part of the property subject to a lien imposed under 
chapter 64 of the Code if such part of the property is sold and, 
pursuant to a written agreement with the district director, the proceeds 
of the sale are held, as a fund subject to the liens and claims of the 
United States, in the same manner and with the same priority as the lien 
or claim had with respect to the discharged property. This subparagraph 
does not apply unless the sale divests the taxpayer of all right, title, 
and interest in the property sought to be discharged. Any reasonable and 
necessary expenses incurred in connection with the sale of

[[Page 263]]

the property and the administration of the sale proceeds shall be paid 
by the applicant or from the proceeds of the sale before satisfaction of 
any lien or claim of the United States.
    (4) Application for certificate of discharge. Any person desiring a 
certificate of discharge under this paragraph shall submit an 
application in writing to the district director responsible for 
collection of the tax. The application shall contain such information as 
the district director may require.
    (c) Estate or gift tax liability fully satisfied or provided for--
(1) Certificate of discharge. If the district director determines that 
the tax liability for estate or gift tax has been fully satisfied, he 
may issue a certificate of discharge of any or all property from the 
lien imposed thereon. If the district director determines that the tax 
liability for estate or gift tax has been adequately provided for, he 
may issue a certificate discharging particular items of property from 
the lien. If a lien has arisen under section 6324B (relating to special 
lien for additional estate tax attributable to farm, etc., valuation) 
and the district director determines that the liability for additional 
estate tax has been fully secured in accordance with Sec. 20.6324B-1(c) 
of this chapter, the district director may issue a certificate of 
discharge of the real property from the section 6324B lien. The issuance 
of such a certificate is a matter resting within the discretion of the 
district director, and a certificate will be issued only in case there 
is actual need therefor. The primary purpose of such discharge is not to 
evidence payment or satisfaction of the tax, but to permit the transfer 
of property free from the lien in case it is necessary to clear title. 
The tax will be considered fully satisfied only when investigation has 
been completed and payment of the tax, including any deficiency 
determined, has been made.
    (2) Application for certificate of discharge. An application for a 
certificate of discharge of property from the lien for estate or gift 
tax should be filed with the district director responsible for the 
collection of the tax. It should be made in writing under penalties of 
perjury and should explain the circumstances that require the discharge, 
and should fully describe the particular items for which the discharge 
is desired. Where realty is involved each parcel sought to be discharged 
from the lien should be described on a separate page and each such 
description submitted in duplicate. In the case of an estate tax lien, 
the application should show the applicant's relationship to the estate, 
such as executor, heir, devisee, legatee, beneficiary, transferee, or 
purchaser. If the estate or gift tax return has not been filed, a 
statement under penalties of perjury may be required showing (i) the 
value of the property to be discharged, (ii) the basis for such 
valuation, (iii) in the case of the estate tax, the approximate value of 
the gross estate and the approximate value of the total real property 
included in the gross estate, (iv) in the case of the gift tax, the 
total amount of gifts made during the calendar year and the prior 
calendar years subsequent to the enactment of the Revenue Act of 1932 
and the approximate value of all real estate subject to the gift tax 
lien, and (v) if the property is to be sold or otherwise transferred, 
the name and address of the purchaser or transferee and the 
consideration, if any, paid or to be paid by him.
    (3) For provisions relating to transfer certificates in the case of 
nonresident estates, see Sec. 20.6325-1 of this chapter (Estate Tax 
Regulations).
    (d) Subordination of lien--(1) By payment of the amount 
subordinated. A district director may, in his discretion, issue a 
certificate of subordination of a lien imposed under chapter 64 of the 
Code upon any part of the property subject to the lien if there is paid 
over to the district director an amount equal to the amount of the lien 
or interest to which the certificate subordinates the lien of the United 
States. For this purpose, the tax lien may be subordinated to another 
lien or interest on a dollar-for-dollar basis. For example, if a notice 
of a Federal tax lien is filed and a delinquent taxpayer secures a 
mortgage loan on a part of the property subject to the tax lien and pays 
over the proceeds of the loan to a district director after an 
application for a certificate of subordination is approved, the district 
director will issue

[[Page 264]]

a certificate of subordination. This certificate will have the effect of 
subordinating the tax lien to the mortgage.
    (2) To facilitate tax collection--(i) In general. A district 
director may, in his discretion, issue a certificate of subordination of 
a lien imposed under chapter 64 of the Code upon any part of the 
property subject to the lien if the district director believes that the 
subordination of the lien will ultimately result in an increase in the 
amount realized by the United States from the property subject to the 
lien and will facilitate the ultimate collection of the tax liability.
    (ii) Examples. The provisions of this subparagraph may be 
illustrated by the following examples:

    Example 1. A, a farmer needs money in order to harvest his crop. A 
Federal tax lien, notice of which has been filed, is outstanding with 
respect to A's property. B, a lending institution is willing to make the 
necessary loan if the loan is secured by a first mortgage on the farm 
which is prior to the Federal tax lien. Upon examination, the district 
director believes that ultimately the amount realizable from A's 
property will be increased and the collection of the tax liability will 
be facilitated by the availability of cash when the crop is harvested 
and sold. In this case, the district director may, in his discretion, 
subordinate the tax lien on the farm to the mortgage securing the crop 
harvesting loan.
    Example 2. C owns a commercial building which is deteriorating and 
in unsalable condition. Because of outstanding Federal tax liens, 
notices of which have been filed, C is unable to finance the repair and 
rehabilitation of the building. D, a contractor, is willing to do the 
work if his mechanic's lien on the property is superior to the Federal 
tax liens. Upon examination, the district director believes that 
ultimately the amount realizable from C's property will be increased and 
the collection of the tax liability will be facilitated by arresting 
deterioration of the property and restoring it to salable condition. In 
this case, the district director may, in his discretion, subordinate the 
tax lien on the building to the mechanic's lien.
    Example 3. E, a manufacturer of electronic equipment, obtains 
financing from F, a lending institution, pursuant to a security 
agreement, with respect to which a financing statement was duly filed 
under the Uniform Commercial Code on June 1, 1970. On April 15, 1971, F 
gains actual notice or knowledge that notice of a Federal tax lien had 
been filed against E on March 31, 1971, and F refuses to make further 
advances unless its security interest is assured of priority over the 
Federal tax lien. Upon examination, the district director believes that 
ultimately the amount realizable from E's property will be increased and 
the collection of the tax liability will be facilitated if the work in 
process can be completed and the equipment sold. In this case, the 
district director may, in his discretion, subordinate the tax lien to 
F's security interest for the further advances required to complete the 
work.
    Example 4. Suit is brought against G by H, who claims ownership of 
property the legal title to which is held by G. A Federal tax lien 
against G, notice of which has previously been filed, will be 
enforceable against the property if G's title is confirmed. Because 
section 6323(b)(8) is inapplicable, J, an attorney, is unwilling to 
defend the case for G unless he is granted a contractual lien on the 
property, superior to the Federal tax lien. Upon examination, the 
district director believes that the successful defense of the case by G 
will increase the amount ultimately realizable from G's property and 
will facilitate collection of the tax liability. In this case, the 
district director may, in his discretion, subordinate the tax lien to 
J's contractual lien on the disputed property to secure J's reasonable 
fees and expenses.

    (3) Subordination of section 6324B lien. The district director may 
issue a certificate of subordination with respect to a lien imposed by 
section 6324B if the district director determines that the interests of 
the United States will be adequately secured after such subordination. 
For example, A, a qualified heir of qualified real property, needs to 
borrow money for farming purposes. If the current fair market value of 
the real property is $150,000, the amount of the claim to which the 
special lien is to be subordinated is $40,000, the potential liability 
for additional tax (as defined in section 2032A(c)) is less than 
$55,000, and there are no other facts to indicate that the interest of 
the United States will not be adequately secured, the district director 
may issue a certificate of subordination. The result would be the same 
if the loan were for bona fide purposes other than farming.
    (4) Application for certificate of subordination. Any person 
desiring a certificate of subordination under this paragraph shall 
submit an application therefor in writing to the district director 
responsible for the collection of the tax. The application shall contain 
such information as the district director may require.

[[Page 265]]

    (e) Nonattachment of lien. If a district director determines that, 
because of confusion of names or otherwise, any person (other than the 
person against whom the tax was assessed) is or may be injured by the 
appearance that a notice of lien filed in accordance with Sec. 
301.6323(f)-1 refers to such person, the district director may issue a 
certificate of nonattachment. Such certificate shall state that the 
lien, notice of which has been filed, does not attach to the property of 
such person. Any person desiring a certificate of nonattachment under 
this paragraph shall submit an application therefor in writing to the 
district director responsible for the collection of the tax. The 
application shall contain such information as the district director may 
require.
    (f) Effect of certificate--(1) Conclusiveness. Except as provided in 
subparagraphs (2) and (3) of this paragraph, if a certificate is issued 
under section 6325 by a district director and the certificate is filed 
in the same office as the notice of lien to which it relates (if the 
notice of lien has been filed), the certificate shall have the following 
effect--
    (i) In the case of a certificate of release issued under paragraph 
(a) of this section, the certificate shall be conclusive that the tax 
lien referred to in the certificate is extinguished;
    (ii) In the case of a certificate of discharge issued under 
paragraph (b) or (c) of this section, the certificate shall be 
conclusive that the property covered by the certificate is discharged 
from the tax lien;
    (iii) In the case of a certificate of subordination issued under 
paragraph (d) of this section, the certificate shall be conclusive that 
the lien or interest to which the Federal tax lien is subordinated is 
superior to the tax lien; and
    (iv) In the case of a certificate of nonattachment issued under 
paragraph (e) of this section, the certificate shall be conclusive that 
the lien of the United States does not attach to the property of the 
person referred to in the certificate.
    (2) Revocation of certificate of release or nonattachment--(i) In 
general. If a district director determines that either--
    (a) A certificate of release or a certificate of nonattachment of 
the general tax lien imposed by section 6321 was issued erroneously or 
improvidently, or
    (b) A certificate of release of such lien was issued in connection 
with a compromise agreement under section 7122 which has been breached,

and if the period of limitation on collection after assessment of the 
tax liability has not expired, the district director may revoke the 
certificate and reinstate the tax lien. The provisions of this 
subparagraph do not apply in the case of the lien imposed by section 
6324 relating to estate and gift taxes.
    (ii) Method of revocation and reinstatement. The revocation and 
reinstatement described in subdivision (i) of this subparagraph is 
accompanied by--
    (a) Mailing notice of the revocation to the taxpayer at his last 
known address (see Sec. 301.6212-2 for further guidance regarding the 
definition of last known address); and
    (b ) Filing notice of the revocation of the certificate in the same 
office in which the notice of lien to which it relates was filed (if the 
notice of lien has been filed).
    (iii) Effect of reinstatement--(a) Effective date. A tax lien 
reinstated in accordance with the provisions of this subparagraph is 
effective on and after the date the notice of revocation is mailed to 
the taxpayer in accordance with the provisions of subdivision (ii)(a) of 
this subparagraph, but the reinstated lien is not effective before the 
filing of notice of revocation, in accordance with the provisions of 
subdivision (ii)(b) of this subparagraph, if the filing is required by 
reason of the fact that a notice of the lien had been filed.
    (b) Treatment of reinstated lien. As of the effective date of 
reinstatement, a reinstated lien has the same force and effect as a 
general tax lien imposed by section 6321 which arises upon assessment of 
a tax liability. The reinstated lien continues in existence until the 
expiration of the period of limitation on collection after assessment of 
the tax liability to which it relates. The reinstatement of the lien 
does not retroactively reinstate a previously filed notice of lien. The 
reinstated lien is not valid against any holder of a lien or interest 
described in Sec. 301.6323(a)-1 until

[[Page 266]]

notice of the reinstated lien has been filed in accordance with the 
provisions of Sec. 301.6323(f)-1 subsequent to or concurrent with the 
time the reinstated lien became effective.
    (iv) Example. The provisions of this subparagraph may be illustrated 
by the following example:

    Example. On March 1, 1967, an assessment of an unpaid Federal tax 
liability is made against A. On March 1, 1968, notice of the Federal tax 
lien, which arose at the time of assessment, is filed. On April 1, 1968, 
A executes a bona fide mortgage on property belonging to him to B. On 
May 1, 1968, a certificate of release of the tax lien is erroneously 
issued and is filed by A in the same office in which the notice of lien 
was filed. On June 3, 1968, the lien is reinstated in accordance with 
the provisions of this subparagraph. On July 1, 1968, A executes a bona 
fide mortgage on property belonging to him to C. On August 1, 1968, a 
notice of the lien which was reinstated is properly filed in accordance 
with the provisions of Sec. 301.6323(f)-1. The mortgages of both B and 
C will have priority over the rights of the United States with respect 
to the tax liability in question. Because a reinstated lien continues in 
existence only until the expiration of the period of limitation on 
collection after assessment of the tax liability to which the lien 
relates, in the absence of any extension or suspension of the period of 
limitation on collection after assessment, the reinstated lien will 
become unenforceable by reason of lapse of time after February 28, 1973.

    (3) Certificates void under certain conditions. Notwithstanding any 
other provisions of subtitle F of the Code, any lien for Federal taxes 
attaches to any property with respect to which a certificate of 
discharge has been issued if the person liable for the tax reacquires 
the property after the certificate has been issued. Thus, if property 
subject to a Federal tax lien is discharged therefrom and is later 
reacquired by the delinquent taxpayer at a time when the lien is still 
in existence, the tax lien attaches to the reacquired property and is 
enforceable against it as in the case of after-acquired property 
generally.
    (g) Filing of certificates and notices. If a certificate or notice 
described in this section may not be filed in the office designated by 
State law in which the notice of lien imposed by section 6321 (to which 
the certificate or notice relates) is filed, the certificate or notice 
is effective if filed in the office of the clerk of the United States 
district court for the judicial district in which the State office where 
the notice of lien is filed is situated.

(Secs. 6324B (90 Stat. 1861, 26 U.S.C. 6324B) and 7805 (68A Stat. 917, 
26 U.S.C. 7805))

[32 FR 15241, Nov. 3, 1967, as amended by T.D. 7429, 41 FR 35512, Aug. 
23, 1976; T.D. 7847, 47 FR 50857, Nov. 10, 1982; T.D. 8939, 66 FR 2821, 
Jan. 12, 2001]