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What are IRS liens and levies?

On Behalf of | Jan 5, 2024 | Tax Law

Two primary tools often come into play in IRS collections: liens and levies. These mechanisms are pivotal in the agency’s approach to collecting unpaid taxes. Understanding their nuances makes it easier to navigate tax issues.

Liens and levies, although terms used interchangeably by many, are distinctly different. A lien is a legal claim against property to secure payment of a tax debt, while a levy involves the seizure of property to satisfy the debt.

Process from tax lien to tax levy

A tax lien is the government’s legal claim against your property that may be put into place if you neglect to pay a tax debt. This action doesn’t involve the immediate seizure of assets but rather secures the government’s interest in your assets. When the IRS places a lien on your property, it essentially announces its legal right to your property to other creditors.

The process begins with the IRS sending a bill that explains how much you owe. This is known as the Notice and Demand for Payment. If you fail to pay the debt in full in time, the IRS files a public document, the Notice of Federal Tax Lien, to alert creditors that the government has a legal right to your property.

The presence of a tax lien can significantly affect your financial standing. It can:

  • Hamper your ability to sell or mortgage property as buyers or lenders see the lien as a red flag.
  • Negatively impact your credit scores, making it harder to obtain credit.
  • Attach to business property, including accounts receivable.

Unlike liens, a levy authorizes the actual seizure of your property to satisfy a tax debt. If you don’t pay your taxes or make arrangements to settle your debt, the IRS may levy, seize and sell virtually any type of property you own or have an interest in.

The levy process

Before seizing your property, the IRS will send a Final Notice of Intent to Levy and Notice of Your Right to A Hearing. This notice can be given in person, left at your home or workplace or sent to your last known address by certified or registered mail, return receipt requested. You generally have 30 days to respond before the IRS seizes your property.

If you have received such a notice or are concerned that you might, seeking personalized legal guidance can be beneficial. Protecting your assets is sometimes possible through programs offered by the IRS, but it can be challenging to secure such opportunities without help from someone who understands tax law inside and out.