Tax debts are some of the hardest debts to deal with. There are several reasons for this, such as special treatment during bankruptcy proceedings and the fact that it’s the government trying to collect the debt.
However, another major challenge is that government taxing authorities, such as the Internal Revenue Service (IRS) and the State of California Franchise Tax Board (FTB), can use liens and levies to help collect tax debts.
What’s the Difference Between a Tax Lien and a Tax Levy?
A lien is a claim that indicates the lienholder has a legal interest in one or more pieces of property. When it comes to taxes, the IRS or FTB will place a lien that attaches to a taxpayer’s current and future property. This includes both personal and real property.
FTB’s tax lien is more limited than the IRS tax lien, but only because it applies to the taxpayer’s California real and personal property.
Tax liens usually involve a two-step process. During the first step, the tax lien will automatically arise when there is a tax debt. This might occur if the IRS or FTB sends a notice of a tax debt and the taxpayer does not pay it or make arrangements to have it paid over time.
Next, the IRS or FTB will file a notice of the tax lien. This is a public document that tells the general public that there is a tax debt on the taxpayer’s property and that the IRS or FTB has a legal claim to it. This also tells creditors and prospective buyers of the taxpayer’s property that they can’t buy the taxpayer’s property or that if they do, the IRS or FTB can take it away from them.
In contrast, a levy involves the actual taking of the taxpayer’s property. Both the IRS and FTB can use tax levies to withdraw money from a taxpayer’s bank account or acquire the personal or real property of the taxpayer.
The FTB has two types of levies, Orders to Withhold and Continuous Orders to Withhold. As their names imply, the first type is a one-time order while the latter can be in effect for up to one year.
How to Get Rid of a Lien or Levy
The fastest and quickest way to get release a lien or stop a levy is to pay the tax debt in full. This requires paying not just the back taxes, but any additional penalties and interest that may apply.
But paying off the tax debt isn’t a realistic option for most taxpayers. Therefore, there are other options available, some of which are more easily obtained due to the coronavirus.
For example, taxpayers suffering from financial difficulties can have the FTB remove a lien or levy by asking for help. The FTB will work with taxpayers to arrange payment plans, modify the lien or levy, place a hold on the collection of the tax debt or accept an offer in compromise.
In the case of the IRS, if a taxpayer can show that the levy places a severe financial hardship on the taxpayer, the IRS may lift the levy. As for the lien, the IRS may release it if the taxpayer can demonstrate tax compliance over the past few years or making arrangements to pay off the tax debt over time.
Keep in mind that if the FTB or IRS agrees to remove a lien or levy, the taxpayer must still pay off the tax debt.
Having Trouble with a Lien or Levy from the IRS or FTB?
The good news is Kienitz Tax Law is here to help you remove tax liens and levies. Schedule your FREE consultation today!