What is the difference between a tax lien and a tax levy?
If you don’t have the time to read the rest of the article, here’s a great way to summarize the differences: a tax lien does not result in the IRS taking your property from you. A tax levy does.
Sometimes, taxes and bills are not paid on time, and sometimes certain debts are owed. It happens to almost everyone: from regular individuals to entire corporations. Almost everyone struggles financially at one point.
But what if you owe money to the government? What if you simply can’t pay the amount back at the moment its due? What if you owe someone money and they bring up the concept of liens and levies? What should you do?
The.IRS (Theirs)
The IRS. Push those two words together and you get “theirs”. Yes, if they want it it can be theirs. The Internal Revenue Service, also known as the IRS, has two ways to collect back taxes: a tax lien and a tax levy. Although they are discussed together frequently, these two are not exactly the same. A federal tax lien is different from an IRS levy.
The Early Take Away
If you don’t have the time to read the rest of the article, here’s a great way to summarize the differences: a tax lien does not result in the IRS taking your property from you. A tax levy does.
Of course, you have rights to defend the filing of a lien. You can also prevent the issuance of a levy. But in order to assert your rights and protect your properties, you will need at least a basic understanding of these tools used by the IRS.
On this article, we will be discussing what you need to know about the tax lien and the tax levy.
What is a Lien?
A tax lien is the government’s claim on your property. It is placed when a taxpayer—be it an individual or a business—fails to pay taxes owed. It ensures that they get the first right to your property over other creditors.
A tax lien will remain in place until you finally pay off your tax liability, or the statute of limitations on the debt expires. It may also be removed if the taxpayer meets the new requirements from the IRS Fresh Start Initiative.
In essence, a lien is the right to keep possession of property belonging to another person, until a debt owed by that person is discharged. A tax lien is the government version of this, and it takes priority over other creditors.
When the IRS confirms that you have not paid your taxes, they will send you a bill: and should you neglect or refuse to pay it, that’s when a federal tax lien comes into being. The Notice of Federal Tax Lien is filed by the IRS. It is a public document that alerts creditors that the government has a legal right to your property.
Do keep in mind that your appeal rights are explained in IRS Publication 1660, Collection Appeal Rights.
Once filed, the Notice of Federal Tax Lien secures the IRS claim against your assets. Credit reporting agencies may include it in your credit report.
So what property is claimed by a lien or a tax lien? Liens attach to a property you own when it is filed, as well as other properties you purchase after that. Federal tax liens, for example, often impact real estate. How does the process of filing a lien work? The good news is that it will not come as a complete surprise.
The IRS follows a process while securing a tax lien on a taxpayer’s property.
First they will assess the amount owed by having the taxpayer file a tax return. A tax bill will be sent to the taxpayer’s last known address—this is to demand payment. Provided that the taxpayer does not pay the tax bill owed in the allowed time, the IRS will proceed to the next step: filing the Notice of Federal Tax Lien.
So if a lien does not seize property, what does it do? Once a property has been claimed, it will appear on the taxpayer’s credit report. It may make it difficult for the individual or business to obtain future credit or loans. It will be much more difficult to buy a car, home, or new credit card. It is likely to have an immediate impact on the taxpayer’s credit score.
If a lien is filed against you by the IRS, you have a 30-day window to file an administrative appeal to request reconsideration of the filing. Gudeman and Associates can help you with this process by creating a collection due process appeal.
What is a Levy?
A levy is the legal seizure of your property in order to satisfy a tax debt. This is what makes it different from liens, which act as a simple claim on your property. A levy actually takes the property to satisfy the tax debt.
However, an IRS levy is not a public record and will not affect an individual’s credit report. The IRS can levy your wages, your bank accounts, accounts receivable, or even your retirement accounts. The IRS may seize your house, your car, or your business equipment—the latter is quite rare.
For most people, the levy has a much more devastating impact compared to the lien.
There are only a few things that the IRS cannot levy. This includes the right to keep unemployment benefits, workers compensation, household goods, and some tools of your trade. The Internal Revenue Code 6334 lists down these exemptions.
Here’s what you need to know about levies. Before the IRS can levy your property, they will first send you a Final Notice of Intent to Levy. This is your notice that the IRS intends to start enforcement against you.
After you receive the Final Notice of Intent to Levy, you have 30 days to file an appeal against this proposed collection action made by the IRS. If you file an appeal, the IRS is prevented from taking action until your hearing is completed.
This will help reach a resolution to levy action before it occurs. It can come in the form of compromise, installment agreement, etc. This will not only prevent the levy from happening and secure your property, it will also give you a much more manageable way to deal with your debt.
In the rare event that the IRS does seize your house, they need to get court approval first. The Department of Justice will usually file a lawsuit against you. This is not something you want to happen, of course.
Now that you know some of the basics, you can work with Gudeman and Associates Attorneys to help you deal with liens and levies alike—whichever you are facing. Work with us today!
