IRS Redemption After a Tax Sale: The 120-Day Rule Every Bidder Must Know

What is the IRS right of redemption?

When someone fails to pay federal taxes, the IRS can record a Notice of Federal Tax Lien against their property. That lien attaches to real estate the taxpayer owns in the county where it is filed. If the property is later sold at a non-judicial sale — including many county tax-deed and mortgage foreclosure sales — federal law gives the United States a special right to step in after the sale and redeem the property from the winning bidder.

In other words, the auction hammer does not necessarily end the story. The IRS can reimburse you and take the property, effectively unwinding your purchase. This right exists to protect the government's ability to collect on its lien, and it applies regardless of how good a deal you thought you got.

The 120-day rule under 26 U.S.C. § 7425

The governing statute is 26 U.S.C. § 7425(d). It gives the IRS the right to redeem property sold at a non-judicial sale within 120 days after the sale date, or the redemption period allowed under state law, whichever is longer. So in a state with a short or no post-sale redemption period, the federal 120-day clock is what matters. In a state with a longer statutory redemption window, that longer period controls.

Practically, this means a buyer cannot treat the property as fully and finally theirs the moment the sale closes if a federal tax lien was attached. You should wait out the applicable redemption period — at minimum the 120 federal days — before investing heavily in repairs, resale, or a quiet-title action.

When the federal tax lien survives the sale

There is a second, sharper trap. For a non-judicial sale to discharge a federal tax lien at all, the party conducting the sale generally must give the IRS written notice of the sale at least 25 days in advance, as required by 26 U.S.C. § 7425(c)(1). If that notice is not properly given, the federal tax lien is not discharged — it can survive the sale and remain attached to the property in your hands.

That is a very different and worse outcome than redemption. Instead of being reimbursed, you could end up owning a property still encumbered by the government's lien. This is one of the reasons federal tax liens are treated as a serious, deal-specific risk rather than a footnote.

What happens if the IRS redeems — and how you get paid

If the IRS exercises its right to redeem, you do not simply lose your money. The government must pay you back. Under the statute the redemption amount reimburses the purchaser for the price paid at the sale, plus interest at 6% per year, along with certain allowable expenses the buyer incurred.

That sounds tolerable, but consider the opportunity cost. Your capital was tied up, you may have spent time and money on the property, and the upside you were counting on evaporates in exchange for a modest fixed return. For a bidder who paid a low price expecting a large equity spread, an IRS redemption converts a home-run deal into a small, capped payout.

How to check for federal tax liens before you bid

Because the consequences range from a capped return to a surviving lien, federal tax liens belong at the top of your pre-bid checklist. A few practical steps:

• •Search the county land records for a recorded Notice of Federal Tax Lien in the current or former owner's name.
• •Confirm whether the taxing authority actually gave the IRS the 25-day notice required to discharge the lien.
• •Assume the 120-day federal redemption window applies and do not commit renovation capital until it closes.
• •Factor a possible IRS redemption into your return math — model the deal as if your upside might be capped at cost plus 6%.

The bottom line

IRS redemption after a tax sale is not common on every parcel, but when it applies it can reshape or reverse the entire deal. The winning discipline is the same one that separates consistent tax-sale investors from gamblers: identify which liens survive, which redemption clocks are still running, and what your real downside is before the auction — not after you have already paid.

A federal tax lien is exactly the kind of buried risk that never appears in the auction listing itself. Surfacing it early is the difference between a calculated bid and an expensive surprise.

IRS Redemption After a Tax Sale FAQ