Publication 784 (Rev. 12-2022) Catalog Number 46756T Department of the Treasury Internal Revenue Services www.irs.gov
Section 7 - Basis for Subordination
A subordination may be granted under Internal Revenue Code
(IRC) 6325(d)(1) or 6325(d)(2). Review the information below
and select the section which best applies to your subordination
request. If the IRS does not agree with your selection after its
review, an explanation of the decision will be provided.
6325(b)(1) – a subordination may be issued under this section
if you pay an amount equal to the lien or interest to which
the certicate subordinates the lien of the United States. The
following example uses an 80% loan to value and a 3% closing
cost to nancing ratio.
Example
Current/New Original
Fair Market Value $200,000 N/A
Renance $160,000 $145,000
Closing Costs $4,800 N/A
United States Interest $10,200 N/A
In this example the United States’ interest is the equity
you obtain from your renanced loan after paying off the
existing loan of $145,000 and paying the closing costs to
obtain the loan. ($200,000 property value x 80% loan to
value ratio = $160,000 renance loan amount. $160,000 -
$145,000 loan payoff = $15,000 potential equity. $160,000
x 3% = $4800 closing costs to obtain the loan. $15,000
potential equity - $4,800 closing costs = $10,200) The
IRS would ask for $10,200 in return for the United States
subordinating its interest to the renanced loan. The lien
remains on the property but the renanced loan has priority
over the lien.
4. 6325(d)(2) – a subordination may be issued under this
section if the IRS determines that the issuance of the
certicate will increase the amount the government realizes
and make collection of the tax liability easier. This might
involve a renance to a lower interest rate which would,
if the subordination were granted, allow a larger monthly
repayment rate on the tax liability. Or the situation might
be more complex. For example, AAA Auto Sales currently
pays the IRS $2000 per month on a $120,000 tax debt.
Their inventory needs replenishing but their wholesaler is
reluctant to provide added inventory because of the federal
tax lien. AAA requests subordination and provides the IRS
with documentation that an inventory replenishment of 500
cars could allow them to increase their monthly payment
to $3000 as well as increase their pay back rate to bi-
weekly. In this example the United States’ interest would
be second on the new inventory, if the subordination is
granted.
For applications under section 6325(d)(2), complete and
attach a signed and dated statement describing how the
amount the United States may ultimately realize through
this subordination will increase and how collection will be
facilitated by the subordination.
5. 6325(d)(3) – Questions and applications for this
sectionrefer to Publication 1153 for instructions.
Section 8 – Description of Property
1. Enter a detailed description of the collateral you will use
for the loan or other nancing. This is the collateral on
which you want the lien interest subordinated to the loan or
nancing. If this is real estate, you must provide the legal
description.
2. When the property is real estate include the type of
property. For example, 3-bedroom house; etc. When the
property is personal property include serial or vehicle
numbers, as appropriate. For example, 2002 Cessna twin
engine airplane, serial number AT919000000000X00; etc.
3. Provide the property’s physical address if it is real estate or
provide the physical address where the property is located,
if it is personal property.
4. Check the appropriate box to indicate whether you
attached a copy of the title or deed to the property
Section 9 – Appraisal and Valuations
1. Check the “Attached” box after “Appraisal” to indicate
whether you have attached an appraisal completed by a
disinterested third party. This is typically a professional
appraisal providing neighborhood analysis; description of
the site; description of the improvements; cost approach;
comparable sales; denition of market value; certication;
contingent and limiting conditions; interior and exterior
photos of the property; exterior photos of comparable
sales used; comparable sales location map; sketch of
subject property showing room layout; ood map and
qualications of the appraiser. This type of appraisal is
not required for a certificate of subordination.
2. Check the appropriate box under the “Or One of the
Following Valuations” section to indicate which type
of property value verication is attached with your
application.
Section 10 − Notices of Federal Tax Lien (NFTLs)
This section is important when the applicant and the taxpayer
are different. If the applicant and the taxpayer are the same, this
section may be skipped.
1. Check the “Attached” box if you have attached copies of
the NFTL with your application.
2. If you checked the “no” box list the System Lien
Identication Number (SLID) found in the top right hand
box of the NFTL document, if available. If you do not have
the numbers enter “unknown” in the rst box.
Section 11 − Proposed loan agreement
1. Check the “attached” box if you have attached the
proposed mortgage contract and describe how
subordination is in the best interests of the United States
2. If you checked the “no” box, describe how subordination is
in the best interests of the United States.
Section 12 − Current Title Report
1. Check the “attached” box if you attached the title report.
This is required for subordination.
2. If you checked the “no” box and the title report is not
attached, use the space provided to list any encumbrances
(liens or claims) against the property and whether those
encumbrances are senior to the United States’ lien interest.
Include the name and address of the holder; description
of the encumbrance, e.g., mortgage, state lien, etc.;