Lien Subordinations Page Lien Subordinations Page Don Fitch CPA CITP (877)CPA-Help or (877)272-4357 Website www.Paylesstax.com

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LIEN SUBORDINATIONS

Under appropriate circumstances a federal tax lien may be subordinated to the interest of a competing lienor. For example, the lien may be subordinated to a new loan if the new loan proceeds are paid to the government, or in other circumstances if the district director believes that subordination of the tax liability will ultimately increase the
amount realizable from the property in question. Subordination is likely to be approved for situations where additional credit is needed to cover products or expenses.

EXAMPLE. $5,000 of cut timber that can be processed into more valuable products is under a federal tax lien of $7,000. A bank loan is necessary to finance the processing. If the lien is subordinated to the bank's operating loan, the final value of the timber products will exceed the cost of production, the loan cost, and the tax lien. Subordination of the tax lien is appropriate if the bank otherwise will not make the loan. Reg. Section 301.6325-1(d)(2)(ii).

Lien Subordinations Page Don Fitch CPA CITP (877)CPA-Help or (877)272-4357 Website www.Paylesstax.com