A federal tax lien is the government’s legal claim against your property when you neglect or fail to pay a tax debt. 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 lien protects the government’s interest in all your property, including real estate, personal property and financial assets. A federal tax lien exists after the IRS:
- Assesses your liability
- Sends you a bill that explains how much you owe
- You neglect or refuse to fully pay the debt in time
A levy is a legal seizure of your property to satisfy a tax debt. Levies are different from liens. A lien is a claim used as security for the tax debt, while a levy actually takes the property to satisfy the tax debt. If you do not pay your taxes (or make arrangements to settle your debt), the IRS may seize and sell any type of real or personal property that you own or have an interest in. For instance,
- The IRS could seize and sell property that you hold (such as your car, boat, or house), or
- The IRS could levy property that is yours but is held by someone else (such as your wages, retirement accounts, dividends, bank accounts, licenses, rental income, accounts receivables, the cash loan value of your life insurance, or commissions).
The IRS usually levy only after these three requirements are met:
- The tax was assessed and sent you a Notice and Demand for Payment;
- You neglected or refused to pay the tax
- You were sent a Final Notice of Intent to Levy and Notice of Your Right to A Hearing (levy notice) at least 30 days before the levy.