IRS Form 12673 Guide: Agreement to Bid for Real Property

1. Introduction: What is Form 12673?

IRS Form 12673, officially titled Agreement to Bid, is a specialized legal contract published by the Internal Revenue Service (IRS). The IRS is a bureau of the United States Department of the Treasury responsible for tax collection, lien enforcement, and revenue administration.

Unlike standard tax returns filed during tax season, Form 12673 is used in real estate transactions involving IRS property redemptions. It is an agreement entered into by a prospective real estate buyer—known as a guaranteed bidder—and the federal government.

When you complete Form 12673, you legally promise to submit a specific minimum opening bid if the IRS acquires and auctions a particular piece of foreclosed real estate. This document protects public funds while giving investors a clear path to purchase foreclosed properties.

2. Purpose of the Form

When a homeowner defaults on their primary mortgage, the lender forecloses on the property. If the owner also owes back federal taxes, the IRS often has a federal tax lien attached to the home’s title. Under federal law, the IRS holds a statutory “right of redemption” that lasts for 120 days after a foreclosure sale.

A right of redemption allows the IRS to step in, buy the foreclosed home from the winning bidder at the foreclosure auction, take title to the property, and resell it to satisfy the unpaid tax debt. However, the IRS will only do this if there is enough equity in the property to recover money for the government.

Form 12673 exists to eliminate financial risk for the government. The IRS will rarely spend taxpayer money to redeem a property unless it already has a buyer lined up. By signing Form 12673 and placing an earnest money deposit, you guarantee that you will bid at least a set dollar amount at the public sale, ensuring the government does not lose money on the transaction.

3. Who Needs to File This Form

Form 12673 is not for the everyday taxpayer filing annual income taxes. It is designed for buyers looking to acquire real estate through IRS redemption sales. You need to use this form if you fall into any of the following categories:

• Prospective Real Estate Investors: You identified a foreclosed property that sold below fair market value and approached the IRS to initiate a redemption.
• Guaranteed Auction Bidders: The IRS Advisory Group agreed to exercise its redemption rights on a property on the condition that you provide a guaranteed opening bid.
• Commercial Entities and Partnerships: Your company, LLC, or investment syndicate plans to acquire real estate being redeemed by the federal government.

Filing this form requires working directly with an IRS Advisory Specialist who is managing the redemption case for that specific territory.

4. Who Is Exempt / Not Required to File

Because Form 12673 is a conditional real estate contract, most people will never encounter it. You do not need to file this form in the following situations:

• General Public Auction Attendees: If you plan to attend a public IRS property auction and bid competitively without serving as the pre-arranged guaranteed bidder, you do not complete Form 12673.
• The Delinquent Taxpayer: The former property owner whose tax debt triggered the lien cannot file this form to buy back their own seized property.
• Foreclosing Lenders: Primary mortgage lenders and senior lienholders exercising their state foreclosure remedies do not use this document.
• Standard IRS Seizure Auctions: If the IRS seizes property directly under regular levy procedures rather than redeeming it from a third-party foreclosure, this form is not required.
• Executive Redemption Waivers: In rare cases where an IRS executive approves a property redemption without a pre-arranged purchaser, no bidder agreement is filed beforehand.

5. When to File

Form 12673 is an event-driven form governed by strict federal deadlines under Section 7425 of the Internal Revenue Code. It must be submitted well before the statutory redemption period expires:

• 120-Day Statutory Window: The IRS generally has 120 calendar days from the date of the third-party foreclosure sale (or the period allowable under state law, whichever is longer) to exercise its right of redemption.
• Processing Buffer: You must execute and submit Form 12673 early in that 120-day timeframe—usually within 30 to 60 days of the foreclosure sale. This gives the IRS Advisory Group and IRS Area Counsel enough time to verify title, calculate redemption figures, and obtain authorization.

If Form 12673 and your deposit are not finalized before the IRS’s 120-day legal redemption window closes, the IRS loses its right to redeem the property, and the transaction cannot move forward.

6. Where and How to File

Form 12673 cannot be e-filed through commercial tax preparation software. It must be processed directly through administrative collection channels.

You must submit the completed form to the specific IRS address as per instructions provided by the local IRS Collection Advisory office handling the property’s jurisdiction. In many cases, the Advisory Specialist will arrange for in-person delivery or secure electronic transmission, followed by original hard copies.

Your submission must be accompanied by certified funds (such as a cashier’s check, certified bank check, or money order) made payable to the “United States Treasury” to cover your mandatory earnest money deposit. Never send cash or personal checks, as the IRS will return them and potentially cause you to miss the redemption window.

7. Step-by-Step Instructions to Fill the Form

Form 12673 is a one-page document, but every detail forms a legally binding agreement with the United States Government. Review the required fields below.

Section Name	Required Information	Important Instructions
Guaranteed Bid Amount	The minimum dollar amount you agree to bid at the public auction.	Must cover the redemption cost, IRS expenses, and statutory interest.
Auction Timeframe	The maximum number of days the IRS has to conduct the sale.	Agreed upon with the IRS Advisory Specialist (often 60 to 90 days).
Property Description	Full legal description of the real estate.	Include metes and bounds, lot numbers, and county parcel data.
Property Address	Physical street address, city, state, and zip code.	Must match county property records and the foreclosure notice.
Deposit Amount	The dollar amount of the certified deposit submitted with the form.	Typically at least 20 percent of your agreed minimum bid amount.
Bidder Identification	Your legal name, business name (if applicable), address, and phone number.	Enter the exact name you want to appear on the final deed.
Signature & Date	Your handwritten legal signature and the date of execution.	Authorizes default penalties and breach-of-contract clauses.

Understanding the Contractual Clauses

Form 12673 contains specific contractual conditions you must read carefully before signing:

• Application of Deposit: If you are the winning bidder at the sale, your full deposit is credited directly toward your total purchase price.
• Breach and Default Terms: If you fail to bid at least the agreed amount, or fail to bid at all, the IRS will retain your deposit pending a determination of damages. If the government’s costs exceed your deposit, you are legally liable for the difference.
• Government Reservation of Rights: The United States Government retains the right to reject any bids or withdraw the property from sale. If the IRS fails to offer the property within the agreed timeframe, the agreement is voided, and your deposit is refunded.

8. Required Documents/Information Needed Before Filling

To successfully execute Form 12673, assemble the following property and financial records in advance:

• Foreclosure Sale Documentation: The certificate of sale, trustee’s deed, or sheriff’s deed showing the foreclosure date and winning bid amount.
• Complete Legal Description: A title report or copy of the recorded deed containing the complete legal metes-and-bounds description.
• Certified Deposit Funds: A cashier’s check or bank check covering the required deposit (usually 20% of your guaranteed bid).
• Proof of Funds: Bank statements or an approved line-of-credit letter showing you can pay the remaining balance if you win the auction.
• Entity Documentation: If purchasing through an LLC or corporation, provide certificates of good standing and proof of signing authority.

9. Common Mistakes to Avoid

Entering into a formal agreement with the federal government requires precision. Watch out for these costly mistakes:

• Underestimating the Required Bid: Your bid must be high enough to cover the foreclosure purchase price, statutory interest (currently 6% annually from the foreclosure date), maintenance costs, and advertising fees.
• Submitting an Ineligible Deposit: Sending a personal check or an unverified bank draft will result in rejection. Use only certified funds payable to the United States Treasury.
• Ignoring Property Condition: IRS redemption sales offer properties strictly “as is, where is.” Inspecting the physical condition and title beforehand is critical, as there are no warranties.
• Failing to Attend the Auction: Signing Form 12673 is not the bid itself; it is a promise to bid. You or your authorized agent must attend the sale and formally place the agreed bid.
• Assuming the Deposit is Automatically Refundable: If you back out or change your mind, your deposit is not simply returned—the IRS can keep it to recover its losses.

10. Penalties for Non-Filing or Errors

Because Form 12673 is an optional contract rather than a mandatory tax return, there are no civil tax penalties for simply choosing not to submit it. However, if you execute the form and fail to meet your obligations, severe legal consequences follow:

• Forfeiture of Earnest Deposit: If you fail to bid the agreed amount and the property sells for less than that amount, the IRS retains your deposit to cover administrative and operational damages.
• Liability for Excess Government Damages: If the costs incurred by the government to redeem, maintain, and re-auction the property exceed your deposit, you are legally responsible for paying the difference.
• Federal Court Action: The Department of Justice can file a civil breach-of-contract lawsuit against you in federal district court to recover unpaid damages.
• Auction Disqualification: Defaulting on an IRS bid agreement may result in being barred from future IRS auctions and federal surplus sales.
• Criminal Fraud Penalties: Providing false financial statements or submitting fraudulent documents on Form 12673 violates federal law under 18 U.S.C. Section 1001, carrying substantial fines and potential imprisonment.

11. Related Forms or Schedules

Form 12673 interacts with various collection and seizure documents within the IRS procedural framework. Key related items include:

• Form 2433: Notice of Seizure
• Form 2434: Notice of Public Auction Sale
• Form 2434-B: Notice of Encumbrances Against or Interests in Property Offered for Sale
• Form 2436: Report of Sale of Seized Property
• Form 2848: Power of Attorney and Declaration of Representative
• Publication 487: How to Prepare Application for Certificate of Discharge of Property from Federal Tax Lien
• Publication 784: How to Prepare Application for Certificate of Subordination of Federal Tax Lien

12. Frequently Asked Questions

What is an IRS right of redemption?

An IRS right of redemption is the federal government’s legal right under Internal Revenue Code Section 7425 to purchase real estate from a foreclosure buyer within 120 days of the foreclosure sale, reimbursing the buyer’s cost plus interest, in order to sell the property to satisfy tax debts.

Is my deposit returned if another person outbids me?

Yes. If you attend the auction, place your guaranteed opening bid as promised, and someone else places a higher bid and wins the property, the IRS will return your deposit in full because you fulfilled your contractual duty.

How does the IRS determine the minimum deposit percentage?

Under the Internal Revenue Manual, the standard required deposit is at least 20 percent of your agreed minimum bid amount. A lower deposit percentage can only be approved under special circumstances with written consent from an IRS Advisory Territory Manager.

Does buying redeemed property from the IRS give me clear title?

An IRS certificate of sale or deed conveys the right, title, and interest the government acquired through redemption. It does not carry full general warranty guarantees. It is essential to perform a comprehensive title search to identify any surviving encumbrances before bidding.

Can the IRS cancel the agreement after I submit Form 12673?

Yes. The IRS reserves the legal right to reject any bid or withdraw the property from sale before the auction occurs. If the government decides not to redeem the property or does not hold the sale within the agreed number of days, the agreement becomes void and your deposit is returned.

Can I submit Form 12673 under an LLC or trust?

Yes. Investors frequently purchase redeemed properties using business entities. You must provide the legal name of the entity, its Employer Identification Number (EIN), and proof that the person signing Form 12673 has the legal authority to bind that entity.

13. Conclusion: Key Takeaways Summarized

Acquiring real estate through the IRS redemption process offers valuable opportunities, but it requires strict adherence to federal procedures. Keep these core principles in mind:

• Form 12673 is a Legal Guarantee: By signing, you make an enforceable promise to place a minimum bid on redeemed real estate.
• Deposit is Mandatory: You must submit certified funds—typically at least 20 percent of your minimum bid—with your completed form.
• Time is Critical: The IRS must redeem foreclosed properties within 120 days of the foreclosure sale, meaning you must submit your proposal as early as possible.
• Default Bears Consequences: Failing to bid as promised can cost you your deposit and expose you to personal liability for excess government expenses.