Accounting Articles > Federal Income Tax:

How to pay off a federal tax lien

If your tax problem has actually gone to the lien stage, here are some practical suggestions:

• First, figure out if the lien is justified and that the amount is correct

  In many cases, where a taxpayer has not responded, or sent in forms, the IRS has estimated an income or payroll tax return on your behalf. Their estimate is generally quite high. If you don’t pay that amount, and don’t respond in any way, then the lien amount placed on your assets could be quite unreasonable. Filling the returns with the correct amounts of tax on them will be quite helpful. Or if the returns that were filled were done incorrectly, then contacting a qualified tax professional and getting the returns amended can save you an enormous amount of money.

• Pay it (once the amount is correct)

  If you have the money, write a check! You can use a credit card, if you must. Most of the credit card rates will probably be less than any interest and penalty charged by the IRS. Also, the enforcement actions available to credit card companies pale in comparison to the power and abilities of your average IRS agent. Credit card companies can’t take your house.

• Borrow it (once the amount is correct)

  If you DON’T have the money, try to borrow it. Credit facilities such as banks or credit card companies also do not have the abilities that are at the disposal of the IRS.

• If you cannot pay or borrow the money, here are some options:

  • Payment plan

    A payment plan is generally your best alternative. We can contact the IRS, fill out the forms, and get your payment plan approved. Whatever monthly amount is agreed upon, make sure that it is ultra affordable. If you have a bad month or two, and miss a payment, then the IRS agent handling your case has the right to cancel the agreement, and go to the next step in the collection process. This could be the seizure forced sale at auction of your assets. Whatever the payment amount, make sure that you pay it, and keep current with your other tax obligations.

  • Offer-and-compromise

    Let’s say that you owe $500,000 to the IRS and are completely incapable of coming up with that amount. You would offer a lesser amount and the IRS would compromise with an amount that was one dollar more than they could expect to collect in a reasonable amount of time.

    If you are still in business, then this avenue will usually not work. There are many people in the accounting business that promise to get taxes reduced to pennies on the dollar. Anyone with reasonable knowledge can get that accomplished if you don’t own anything or have little or no income. But if you are still in business, then the IRS will generally not compromise any amount you owe because it would be a discriminatory practice if they gave you a break, against all of the other people in business that have paid their taxes on time. Please don’t believe anyone who tells you differently. These accountants will charge you a bunch of money and keep it, even after the IRS rejects your application.

  • Stick your head in the sand and hope it goes away

    This is certainly not a reasonable alternative. There has been a lot of talk in the media about taxpayers who haven’t filed a tax return in twenty years and no one from the IRS is working the case. These cases do exist, but if the IRS has already determined that you owe them money, and have gone to the extent of filing a tax lien, do you really think that they are going to forget about it? Of course not. They may not pursue you as hard as they could after several years. But they will continue to come after you.

If you owe and it hasn’t gone to the lien stage, pay it asap!

Cash still works in this country. Checks are great as long as they cash. You can use a credit card if you must. As mentioned above: most of the credit card rates that the credit card companies would charge you will probably be less than any interest and penalty charged by the federal government. Let’s also remember that the enforcement actions available to credit card companies pale in comparison to the power and abilities of your average IRS Agent. Credit card companies can’t take your house.