The filing of an IRS Federal Tax Lien against a vessel registered with the United States Coast Guard (USCG) encumbers the vessel and prevents a clear title transfer unless it is satisfied, discharged or proven to be null and void. In order to secure the clear transfer you have to deal with paperwork for two federal bureaucratic organizations, but it can be done.
I had a client who found out there was an IRS Lien on his boat. The Federal Tax Lien (FTL) had long ago expired due to the statute of limitations but the USCG would not allow the title to transfer on their records without documentation from IRS. We were successful in getting the USCG National Vessel Documentation Center to remove the FTL. It took a lot of back and forth between IRS, the Coast Guard, and my office to get the matter resolved.
First of all there is the issue of the Federal Tax liability. If the FTL is expired or was paid, then you obtain a Certificate of Release of Federal Tax Lien (Release). But you must have specific data on the Release that is not normally provided. The Release must show the place of filing as the “US Coast Guard, National Vessel Documentation Center, Falling Waters, WV” and it must include the vessel specific data such as original recording documentation.
Just because you may have a buyer but the price is less than the amount of the FTL, doesn’t mean you can’t sell the boat. If you are selling the vessel for less than the value of the FTL, then you must apply for a Certificate of Discharge of Property from a Federal tax Lien. You will be required to obtain independent appraisals and other documentation. Generally, if IRS is getting full value after sale expenses, they will likely approve a Discharge of Lien on the vessel. This process will allow title to transfer to the new buyer.
Most workers in the Lien Department are not familiar with how to handle releases for vessels. They often will send you a standard Release, but it will do you no good. You may have to get help from an Enrolled Agent, Attorney or CPA with experience in this area or the Taxpayer Advocate’s Office. You may contact them directly by phone at: 1-800-913-6050. Be prepared for an extended hold time.
Their postal address is:
Internal Revenue Service
Centralized Lien Operation
P.O. Box 145595
Cincinnati, OH 45250-5595
If you have a vessel that has been encumbered by a Federal Tax Lien and you need to sell it or clear title, don’t give up. With proper documentation you can get the matter resolved provided the tax liability has expired, discharged from the vessel, or satisfied.