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1. What is a Purchase Money Mortgage (PMM) and Purchase Money Security Interest (PMSI)?

   A PMM is a type of mortgage a lender issues to the borrower for the purchase of real property. A PMSI is similar but pertains to personal property, like a motor vehicle or consumer goods. They allow lenders to finance purchases even when a Notice of Federal Tax Lien (NFTL) exists against the borrower, assuming all state law requirements are met.

2. Can I get a loan to buy a house or other goods if there is a NFTL against me?

   Yes, it is possible to obtain a loan for purchasing real or personal property despite a NFTL. Lenders can secure their interest with a PMM or PMSI, which may have priority over the tax lien, provided the financing agreement complies with state law requirements.

3. Does a lender’s security interest through PMM or PMSI have priority over a federal tax lien?

   As per Revenue Ruling 68-57, a PMM or PMSI given in good faith that complies with state law does have priority over an already recorded NFTL. This allows the lender to have superior rights to the property compared to the federal tax lien, under specific conditions.

4. Is a certificate of subordination required for a PMM or PMSI to have priority over the NFTL?

   No, obtaining a certificate of subordination from the IRS is not necessary for a PMM or PMSI to take precedence over a federal tax lien. Key is adherence to the relevant state laws regarding the creation, use, and recording of the PMM or PMSI.

5. What are the requirements for a PMM or PMSI to have priority over a federal tax lien?

   • Must be allowed under local state law.
   • The loan proceeds must be directly used to purchase the property.
   • The PMM or PMSI must be duly recorded according to state law within the prescribed time frame.

6. Where can I find more information or get assistance regarding a PMM or PMSI and its priority over a NFTL?

   For specific questions about whether a loan is secured by a qualifying PMM or PMSI, contact the Technical Services (Advisory) office in your area. Information on contacting these offices can be found in IRS Publication 4235, Technical Services (Advisory) Group Addresses.

7. What is the impact of the Federal Tax Lien Act of 1966 on PMM or PMSI?

   The Federal Tax Lien Act of 1966 does not specifically refer to PMM or PMSI but, based on legislative history, the IRS views them as protected interests under certain conditions. This protection applies even after a NFTL has been filed, provided the PMM or PMSI complies with local law.

8. Where can I access official guidance regarding the issue of PMMs, PMSIs, and federal tax liens?

   Official guidance, including Revenue Ruling 68-57, can be found in IRS Publication 785 and on the IRS website. This publication offers detailed insight into how PMMs and PMSIs interact with federal tax liens.

Filling out IRS forms can be complex, and it's essential to pay close attention to the details. When it comes to IRS Form 785, specifically dealing with Special Information Relating to Purchase Money Mortgages, Purchase Money Security Interests, and Subordination of the Federal Tax Lien, a few common mistakes can occur. Knowing what these errors are will help ensure that the process goes smoothly.

1. Not Understanding State Laws: Purchase Money Mortgages (PMM) and Purchase Money Security Interests (PMSI) are governed by state laws, which can vary greatly. A common mistake is not thoroughly researching or misunderstanding these laws. This can lead to a PMM or PMSI not being valid in your state or not adhering to specific state requirements, such as dollar amount limitations.

2. Incorrect Use of Loan Proceeds: The proceeds from the loan must be used directly to purchase the property for the PMM or PMSI to have priority over a federal tax lien. Misallocating funds for other purposes can jeopardize the intended priority status of the lender's security interest over the tax lien.

3. Failure to Record: Proper recording of the PMM or PMSI is critical in many states. This process must be done in the place directed by the state’s law and within any timeframe it specifies. Neglecting this step can result in the PMM or PMSI not being recognized as having priority over the federal tax lien.

4. Assuming Automatic Subordination: It is a misconception that the IRS will issue a certificate of subordination for a PMM or PMSI to automatically have priority over a tax lien. The truth is, if the PMM or PMSI meets all the requirements under state law, a certificate is unnecessary. However, some individuals mistakenly believe they need this certificate, leading to confusion or delays.

5. Not Consulting With Professionals: Given the complexity of tax laws and the importance of the PMM and PMSI arrangements, not seeking advice from tax professionals or legal advisors can be a significant mistake. They can provide clarity on whether a loan is secured by a qualifying purchase money mortgage or purchase money security interest, ensuring compliance with both state and federal regulations.

Avoiding these mistakes requires careful attention to the details of both state and federal laws regarding purchase money arrangements. By understanding these common pitfalls, individuals can navigate the process more effectively, securing the financing they need without undue complications.

When navigating the complexities of IRS Form 785 and Purchase Money Mortgages (PMMs) or Purchase Money Security Interests (PMSI), it's crucial for individuals to understand the interconnected forms and documents that often accompany or are related to Form 785. These documents play a vital role in ensuring that the process of securing a loan, while under a Federal Tax Lien, is comprehensible and follows legal guidelines. Knowing what each document entails can significantly aid in smoothly navigating these processes.

• IRS Form 12277: This is the Application for Withdrawal of Filed Form 668(Y), Notice of Federal Tax Lien. Individuals use this form to request the withdrawal of a public Notice of Federal Tax Lien after the lien has been released. It is instrumental in clearing one's credit history of the lien notation.
• IRS Form 433-D: The Installment Agreement form is used when an individual arranges to pay their tax debt over time instead of in a lump sum. This agreement is crucial for those who cannot immediately pay their debt and wish to avoid further collection actions.
• IRS Form 668(Z): This Certificate of Release of Federal Tax Lien officially releases the lien after the taxpayer has fully paid the tax debt. The release is critical for improving an individual's credit score and for the sale or financing of assets.
• IRS Form 8821: Tax Information Authorization allows individuals to authorize a third party to receive and inspect confidential tax information. Often, a lender may require this authorization to verify tax compliance before processing a loan application.
• IRS Publication 4235: Technical Services (Advisory) Group Addresses provides the contact information needed to reach local IRS offices for advice or questions concerning federal tax liens and related issues. Essential for those seeking personalized guidance or clarification on their specific situations.

Understanding these documents and how they relate to IRS Form 785 and PMMs or PMSIs can prove invaluable for individuals looking to purchase property under a Federal Tax Lien. Each document serves a specific purpose in the broader context of managing or mitigating the impact of a tax lien on property acquisition. Familiarity with these forms ensures that individuals are well-prepared and informed about the steps necessary to secure their desired loans and ultimately achieve their property ownership goals.

The IRS Form 1099-A is similar to the IRS 785 form because both deal with financial transactions related to properties. The Form 1099-A is used to report acquisitions or abandonments of secured property, helping to manage the implications for tax purposes when a property changes hands, possibly through foreclosure. Like the IRS 785 form, it plays a role in determining priority interests in a property, especially regarding tax liabilities and reporting requirements.

Form 8821, Tax Information Authorization, shares a connection with the IRS 785 form as both involve the management and resolution of tax liabilities. While Form 8821 authorizes individuals or organizations to request and inspect confidential tax information on another's behalf, the IRS 785 form addresses how property transactions can be structured to manage those tax liabilities effectively. Both forms work within the realm of navigating tax obligations, albeit from different angles.

Form 4506, Request for Copy of Tax Return, is used to request past tax returns, which can be crucial for understanding an individual's tax history and obligations. This form is indirectly related to the IRS 785 form, which concerns managing tax liens in property transactions. Understanding one's past tax liabilities, possibly uncovered through Form 4506, is essential for dealing with issues addressed by the IRS 785 form, such as prioritizing loans and security interests despite existing tax liens.

Lastly, the Application for Certificate of Subordination of Federal Tax Lien (Form 14134) directly correlates with the topics covered in the IRS 785 form. The Form 14134 is applied when seeking to have a federal tax lien subordinated, allowing other creditors to move ahead of the IRS in priority. This is closely related to the IRS 785’s discussion on how certain types of loans (PMM and PMSI) can receive priority over a federal tax lien without needing a certificate of subordination, assuming state laws are properly adhered to.

When dealing with the IRS Form 785 regarding Purchase Money Mortgages, Purchase Money Security Interests, and Subordination of the Federal Tax Lien, it is crucial to approach the process with attentiveness and accuracy. Here is a curated guide highlighting essential dos and don'ts:

• Do ensure understanding of the terms Purchase Money Mortgage (PMM) and Purchase Money Security Interest (PMSI), as they play a pivotal role in the form's context.
• Do verify that the loan you are obtaining is indeed for the purchase of real or personal property, as this will impact the prioritization over a federal tax lien.
• Do investigate and adhere to your state's specific laws concerning PMMs and PMSIs, recognizing that these laws vary and have a direct effect on your filing.
• Do meticulously ensure that the proceeds from the loan are directly used towards the purchase of the property to maintain priority over the federal tax lien.
• Do record your PMM or PMSI as dictated by your state's law, paying close attention to designated locations and any applicable timeframes.
• Don't overlook the necessity to check if your state imposes any restrictions on the dollar amount of a PMM or PMSI, as this could affect your financing.
• Don't neglect to contact the Technical Services (Advisory) office in your area if you or your lender have questions about your loan's security interest. Utilize the contacts found in Publication 4235 for accurate advice.
• Don't assume the necessity of a certificate of subordination from the IRS. If your PMM or PMSI meets all state law requirements, this certificate is not obligatory.
• Don't underestimate the importance of good faith in securing a PMM or PMSI. It is pivotal for the loan to be given in good faith to secure priority over the tax lien.

Adhering to these guidelines not only simplifies the process but also ensures legality and protects against potential pitfalls. Always remember, when in doubt, seeking advice from a professional familiar with tax laws in your jurisdiction can provide invaluable guidance.

Many people have misconceptions about the IRS Form 785 and its implications for purchase money mortgages (PMM), purchase money security interests (PMSI), and the subordination of federal tax liens. Let's clarify some of the most common misunderstandings.

• Only real property is covered by PMM and PMSI. This is incorrect. While PMM pertains to real property, PMSI applies to personal property as well, including consumer goods or motor vehicles.

• A federal tax lien always has priority over a PMM or PMSI. However, according to Revenue Ruling 68-57, a PMM or PMSI given in good faith to secure a loan for the purchase of property has priority over a pre-existing Notice of Federal Tax Lien (NFTL), provided it complies with state laws.

• The IRS must issue a certificate of subordination for a PMM or PMSI to have priority. This is not true. A certificate of subordination from the IRS is not necessary for a PMM or PMSI to take precedence over a federal tax lien, as long as state law requirements are met.

• All states have the same laws regarding PMM and PMSI. State laws vary, and it's crucial to be familiar with the specific regulations in your state regarding the creation and recording of PMM and PMSI.

• Any loan secured by a PMM or PMSI can have priority over a federal tax lien. Only the portion of the loan used directly to purchase the property can have priority, and it must comply with state law requirements.

• Recording a PMM or PMSI is optional. The recording of PMM or PMSI may be required by state law, and it should be done within any specified timeframe to ensure priority over a federal tax lien.

• A certificate of subordination is always provided upon application. The IRS does not provide a certificate of subordination if the loan is secured by a qualifying PMM or PMSI since it is not necessary for these to have priority over a federal tax lien.

• PMM and PMSI are new principles. These principles have been in place for decades, as evidenced by Revenue Ruling 68-57 published in 1968.

• There is no need to consult the IRS or a legal advisor when dealing with PMM or PMSI. It’s recommended to contact the Technical Services (Advisory) office in your area if you or your lender have questions about qualifying a loan as a PMM or PMSI.

• A federal tax lien affects the entire value of the purchased property. A PMM or PMSI can have priority over a federal tax lien only to the extent of the value that exceeds the amount funded by the loan used to purchase the property.

Understanding the real implications of IRS Form 785 helps borrowers and lenders navigate the complexities of dealing with purchase money security interests and mortgages against a backdrop of federal tax liens.

Understanding how to deal with the IRS Form 785 about Purchase Money Mortgages (PMM), Purchase Money Security Interests (PMSI), and subordination of the Federal Tax Lien is essential for anyone trying to secure a loan while having a federal tax lien. Here are five key takeaways:

• Priority Over Federal Tax Liens: Loans secured for buying real or personal property using PMM or PMSI can have priority over an already recorded Notice of Federal Tax Lien (NFTL). This is crucial for borrowers to understand, as it allows the lender's interest in the property to come first.
• Compliance with State Law: The priority of PMM or PMSI over NFTL is conditional upon meeting all the relevant requirements under state law. It's important to know that while Purchase Money Mortgages and Security Interests are recognized across states, the specifics can vary. Borrowers and lenders must ensure they follow the laws specific to their state regarding the creation, recording, and limits of these mortgages or interests.
• No Need for IRS Subordination Certificate: To give PMM or PMSI priority over a federal tax lien, obtaining a certificate of subordination from the IRS is not necessary. This streamlines the process for borrowers and lenders, provided all state law requirements are met.
• Proper Recording Is Essential: To ensure the PMM or PMSI holds priority over the federal tax lien, it must be recorded according to the state's laws. This means checking where and within what timeframe these interests should be recorded. Failing to properly record can affect the priority status.
• IRS Support: If there are questions about whether a loan being secured qualifies for PMM or PMSI status, borrowers and lenders are encouraged to contact the Technical Services (Advisory) office in their area. The IRS provides assistance through contact information found in Publication 4235, helping clarify any uncertainties regarding the qualifications for priority.

Remember, navigating the specifics of Purchase Money Mortgages and Security Interests in the context of IRS liens can be complex. It always helps to consult with a professional who understands both federal and state laws in this area.