How to Avoid an IRS Lien

Avoiding an Internal Revenue Service (IRS) lien could be the difference between buying the house of your dreams and remaining in a home that you and your family have outgrown. The IRS employs liens as a way to secure its interest in a taxpayer's property and thus ensure that the taxes owed are eventually paid. For taxpayers, avoiding a tax lien could be the key to a future free of bad credit and missed opportunities.

Instructions

1. Pay the amount you owe, in full. If you receive a bill from the IRS, it is best to pay the bill in full as soon as you receive the bill, as the IRS has 10 days from the date of its first notice to issue a lien on your property. If the government files a Notice of Federal Tax Lien on your property, then it may appear on your credit report and lower your credit rating, thus making it more difficult for you to secure loans, lines of credit,or refinancing.

2. Use IRS Form 9465 or the Online Payment Agreement Application found on the IRS website to set up an installment agreement. If you choose to use Form 9465, you can download the form from the IRS website or request it by calling 1-(800)-Tax-Form. Mail your completed form to the address listed in the instructions for Form 9465. On the form, you will enter your name, Social Security number (and your spouse's, if a joint filing), bank account and routing number (if you want the money directly debited out of your account each month) and the amount you wish to pay each month. Penalty and interest charges will accrue until the balance is paid in full.

3. Propose an Offer in Compromise (OIC) to the IRS. An OIC, if accepted, will allow you to pay less tax than what is owed to the IRS and still satisfy your debt. To qualify for an OIC, your tax situation must fit at least one of three categories prescribed by the IRS: doubt of liability, doubt of collectability or effective tax administration. For there to be a doubt of liability, you must present evidence to the IRS that adds doubt as to whether the tax assessment amount is correct. For there to be a doubt of collectability, you must present the IRS with substantiating information that indicates you'll never be able to satisfy the debt in full. And, for the category of effective tax administration, you must show that paying the amount owed would result in an economic hardship for you. To apply for an OIC, complete IRS Form 656 and attach a $150 processing fee as well as a down payment on the tax owed.

References

• IRS.gov: File a Notice of Federal Tax Lien
• IRS.gov: Topic 204 -- Offers In Compromise
• IRS.gov: Topic 201 -- The Collection Process

Resources

• IRS.gov: Online Payment Agreement Application
• IRS.gov: Form 9465 -- Installment Agreement Request