Category: Liens & Levys

Kienitz Tax Law

The Difference Between an IRS Tax Lien and Levy

Having an IRS tax lien or levy imposed is one of the scariest situations a taxpayer can encounter. This fear is completely understandable given the immense power of the IRS. The good news is that the IRS won’t impose a tax lien or levy without first exhausting other collection methods. This means a taxpayer will usually have plenty of notice before things get so bad that the IRS will enact a tax lien or.  However, if you are unfortunate enough to be subject to a tax lien or levy, below is some basic information about IRS tax liens and levies that may help figure out what to do next.

What Is an IRS Tax Lien?

A tax lien is a legal claim the IRS places on a taxpayer’s property as a result of an unpaid tax debt. This legal claim will attach to basically all of the taxpayer’s present and future acquired property, including bank accounts, real estate and personal belongings.

This legal claim, also called a security interest, can create problems for the taxpayer. First, it can severely damage the taxpayer’s credit since any credit checks will reveal the tax lien and make it very difficult to obtain credit, such as a mortgage or personal loan.

Second, the tax lien will effectively make the taxpayer’s property the IRS’ property. This means if the taxpayer sells something that has an IRS tax lien on it, the cash proceeds belong to the IRS, not the taxpayer. This situation will exist until the tax delinquency is resolved.

 

What Is an IRS Tax Levy?

A tax lien is considered to be more “serious” than a lien. This is because the tax levy will result in the IRS taking the property, not just having a legal claim to it. The IRS will take the taxpayer’s property then use it to satisfy the unpaid tax debt.

A tax levy can occur in several ways. First, the IRS can physically possess the property, then sell it and keep the proceeds (assuming the proceeds from the sale are not in excess of the tax debt). Second, the IRS can withdraw money from the taxpayer’s bank account. Third, the IRS can take a percentage of the taxpayer’s income. This is referred to as wage garnishment.

 

How Can I Avoid a Tax Lien or Levy?

The best thing a taxpayer can do is to pay all the taxes they are legally required to pay. Only when the taxpayer fails to pay his or her legal tax bill, will the potential for a tax lien or levy arise. Assuming a taxpayer gets behind on his or her tax obligations, the IRS will send a series of written notices explaining the taxpayer’s tax debt and how to fix it.

The last thing a taxpayer should do is ignore the tax notices from the IRS. It’s when the IRS isn’t getting anywhere with recovering the outstanding tax bill will they take steps to impose a tax lien or levy against the taxpayer.

So even if the taxpayer cannot quickly settle his or her tax debt, they should respond to the IRS collection notices and arrange a way to pay off the tax debt. The IRS may agree to set up a payment plan or settle the tax debt for an amount lower than the full amount owed. There may also be other options, but it’s strongly recommended the taxpayer consult with a tax legal professional to discuss what they are and to decide which option is best.

 

 

 

 

 

IRS Tax Lien and Levy Basics: What You Should Know

If the IRS believes a taxpayer owes a tax debt, the IRS will begin a series of steps to collect the unpaid taxes. The process will begin with notifying the taxpayer and working with them to get the taxes paid. However, if the taxpayer ignores the request or refuses to pay, the IRS has two very powerful tools for collecting the taxes, both of which are the subject of this blog post.

Tax Liens and Levies: What Are They?

A lien and levy are two different things. A tax lien is a security interest the IRS attaches to all of a taxpayer’s property in order to protect the ability to recover the tax debt. Not only does the tax lien attach to all of the taxpayer’s property at the time the lien is imposed, but also to any future property acquired by the taxpayer.

 

A tax levy is the actual taking of property, where property is seized by the IRS in order to help pay for an outstanding tax debt. Unlike a tax lien, a tax levy allows the IRS to not just “claim” property, but actually take it. This can be done in several ways, such as wage garnishment, withdrawal of money from the taxpayer’s bank account and the seizure and sale of physical assets. Despite its power, as long as the required tax procedures are followed, the IRS does not have to go to court to get a tax levy.

 

How Does a Tax Lien or Levy Occur?

 

A tax lien will usually be preceded by two steps. First, the IRS will notify the taxpayer of the unpaid tax debt. Second, the taxpayer will fail to fully pay the tax debt. When a tax lien is placed on property, it ordinarily will not come as a surprise to the taxpayer.

 

A tax levy will usually occur only after a tax lien has been placed on a taxpayer’s property. Once the lien is imposed and the taxpayer still has not paid the tax debt, the IRS will send several notices warning of a tax levy and provide an opportunity for the taxpayer to contest the tax levy at a hearing. If the tax debt is not paid, the IRS will issue the levy.

 

How Can a Tax Lien or Levy Be Removed?

 

A tax lien can be removed or dealt with in several ways:

 

  • Payment of the outstanding tax debt.
  • Obtain a Certificate of Discharge.
  • Subordinate the IRS lien such that other creditors will have a higher priority. This can make getting a loan much easier since it allows non-IRS creditors to gain access to property to secure a debt.
  • Obtain a Lien Notice Withdrawal.

 

A tax levy can be removed when the taxpayer does any of the following:

 

  • Pays the outstanding debt.
  • Demonstrates extreme financial hardship imposed by the levy.
  • Shows that the levy’s release will make it easier for the taxpayer to pay his or her taxes.
  • Enters into an Installment Agreement with the IRS which requires the IRS to remove the levy.
  • Shows that the property levied upon is worth more than the tax debt and the levy’s release will not jeopardize the IRS’ ability to collect the unpaid taxes.

 

In Summary

This blog is just a basic overview of the tax lien and levy process. Should a taxpayer have a tax lien or levy imposed, or receive notice of a potential tax lien or levy, it is highly advisable to seek professional help, such as the services of a tax attorney.