Taylor is resigned to losing Borrowdale over the summer, with the left-back believed to be on the verge of a move to Iain Dowie's Coventry.
Hughes would be a ready-made replacement, and a bid of £500,000 for the 22-year-old is believed to be imminent following the cash received from the Jobi McAnuff transfer.
"I will get some of the money from the [McAnuff] deal to spend," Taylor told the South London Press.
"We offered Gary a new contract, but think someone has offered him more.
"I tracked Jeff while I was at Hull and I may look at that again with Gary likely to go."
However, Lincoln's management team seem unimpressed by the rumours.
"Jeff has not handed in a transfer request and I know nothing of a bid for him," said Lincoln head coach John Schofield.
The Imps' director of football John Deehan was even more direct. "It's rubbish," he said. "Maybe Palace are trying to shift a few extra season tickets by putting out stories like this."