Given the sweeping powers of the Internal Revenue Service (IRS) to collect tax revenues, it is difficult to avoid or eliminate a federal tax lien absent some valid justification. However, there are number of remedies available to taxpayers affected by a federal tax lien that will allow them to works towards the repayment of outstanding tax obligations without the lien becoming overly burdensome.
The most important way to avoid an IRS tax lien is to consistently be up to date with all of tax obligations. A taxpayer that files and pays on time will never have to go through the difficulties surrounding federal tax liens. If a taxpayer is incapable of meeting his or her tax obligations, simply contacting the IRS may be the difference between obtaining a lenient payment plan and suffering the negative effects of a federal tax lien. Installment agreements and offers in compromise may also be available to the taxpayer that cannot meet his or her obligations. Exploring those possibilities with the IRS is by far a better choice than neglecting the outstanding tax obligation.
However, there are other remedies for the taxpayer as well. A taxpayer may attempt to obtain a discharge of property by submitting Publication 783, Certificate of Discharge From Federal Tax Lien, which allows the taxpayer’s property to be sold free of the IRS tax lien. Such a dispensation will be granted only where good cause can be shown by the taxpayer, such as a need to use the proceeds from the sale to obtain basic necessities where the taxpayer’s income is insufficient.
Taxpayer’s may also seek to subordinate the lien, which does not discharge the lien but merely allows other creditors to obtain priority, and in turn may make it easier for the taxpayer to obtain a loan or mortgage. Id. To subordinate the lien, a taxpayer must file Publication 784, Instructions on How to Apply for a Certificate of Subordination of Federal Tax Lien. Additionally, a taxpayer may request withdrawal of the lien, whereby public notice is removed, by filing Form 12277, Application for the Withdrawal of Filed Form 668(Y), Notice of Federal Tax Lien.
Ultimately, there are a number of ways to avoid or eliminate a federal tax lien. The common element in each of the options is the taxpayers’ diligence in the process and in understanding the amount owed at the appropriate times.