CCA 201102058: Relocation assistance does not have to be paid to the IRS for a lien discharge

Plain-English summary

Chief Counsel advice addresses whether the IRS can require a taxpayer to turn over relocation assistance as a condition of discharging a federal tax lien. It concludes that a $3,000 payment under the Home Affordable Foreclosure Alternatives program is paid directly to the taxpayer for relocation and does not affect the taxpayer’s equity in the property for the discharge analysis. The advice states that the IRS cannot require the taxpayer to pay that amount to the IRS, whether the lender’s payment is required by the program or made voluntarily.

Ruling snapshot

• Question: Can the IRS require relocation assistance to be paid to the IRS as a condition of discharging a federal tax lien?
• Outcome: advice given
• Key authorities: IRC § 6325; Home Affordable Foreclosure Alternatives program

Full text (IRS public release)

ID: CCA_2010112416033419 Number: 201102058
Release Date: 1/14/2011
Office: -----------
UILC: 6325.00-00

From: ----------------------
Sent: Wednesday, November 24, 2010 4:03:35 PM
To: ----------------------
Cc:
Subject: Relocation expenses and Discharge

In consultation with the Collection experts in Counsel, below is the answer to your question concerning whether the IRS can require a taxpayer to pay the IRS the amount of relocation expenses as a condition of discharge. Recently, the Treasury Department introduced the Home Affordable Foreclosure Alternatives (HAFA) program. The HAFA program took effect on April 5, 2010. Borrowers who participate in a HAFA transaction are eligible for $3,000 in relocation assistance. If the senior lender provides the taxpayer with the $3,000 relocation assistance required under the HAFA program, the IRS cannot require the taxpayer to turn the $3,000 over in exchange for the lien discharge. The HAFA program payment is a payment directly made to the taxpayer to assist in relocation. As such, the relocation payment has no bearing upon the taxpayer's equity in the property under a discharge analysis. Rather, this is just a payment to the taxpayer. Furthermore, under the terms of this program, since this is a required payment as a condition of participation in the program, it would likely be treated as an ordinary expense of sale to be allowed priority despite being reached by the federal tax lien. If a lender provides relocation assistance because the lender believes it makes good business sense and not because it is required under HAFA, the legal answer is the same. The IRS cannot require the taxpayer to pay the IRS the amount of the relocation expenses as a condition of discharge.