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. A Taxpayer that owes the IRS less than $50,000 can set up a payment plan and avoid a lien. These fresh start or streamline installment agreements typically last 72 months and require a direct debit from a checking or savings account. Unfortunately, entering into a fresh start or streamline installment agreement will not remove a lien that the IRS has already filed.
However, there are other remedies for the taxpayer as well. A taxpayer may attempt to obtain a discharge of a particular piece of property by submitting IRS Form 14135(Application 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 when the IRS’ interest in the property has no value, the value of the taxpayer’s remaining property attached by the tax lien is double the tax liability, or the US government will receive an amount in the sale that is equal to its interest in the property.
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. To subordinate the lien, a taxpayer must file IRS Form 14134 (Application for Certificate of Subordination of Federal Tax Lien). Additionally, a taxpayer may request withdrawal of the lien, whereby public notice is removed, by filing IRS 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.