IRS and State Tax Lien and Levy

IRS and State Tax Lien and Levy are collection tools that the taxing authorities use to pressure taxpayers into paying their unpaid taxes or making payment arrangements.  The good news is in many cases liens and levies can be temporary or released after being accepted into a payment program.

Tax Lien

A federal tax lien is the government’s legal claim against your property when you neglect or fail to pay taxes owed.  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 amount owed in time

Tax Levy

A levy is a legal seizure of your property as a result of unpaid taxes. Levies are different from liens.  A lien is a claim used as security for the unpaid taxes, while a levy actually takes the property to “pay” the taxes.  If you do not pay your taxes (or make arrangements to settle the taxes you owe), 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.

Frequently Asked Questions About Tax Liens and Levies

There is often confusion between the difference between a tax lien and a tax levy. A tax lien is a legal claim that can be made against your property in order to secure payment in the future on the money you owe.

A tax levy enables the IRS or State to physically seize your property in order to satisfy your outstanding tax bill.

Prior to a tax lien being placed on your property, the IRS must first asses a taxpayer with what is called a liability and demand payment. If the taxpayer does not make a payment within 10 days of the demand, the IRS has the ability to send out a notice of a federal tax lien. In order to notify you of this tax lien a letter will be sent to you in the mail, and they may also try to contact you by phone.

Once the IRS has filed a tax lien against your property, the tax lien becomes public and the IRS will have an official claim to your property. This makes it difficult to borrow money in the future. While a tax lien may not show up on your personal credit report, it can show up on other consumer and business reports.

A federal tax lien covers all property a taxpayer owns plus any future property they obtain.

Yes, a federal tax lien can be released. In order for the tax lien to be released a person much get back into compliance with their taxes in order for the lien to be released. You can either pay in full or enter into an offer in compromise.

The most common reason why the IRS will file a tax lein is because of unpaid income taxes. A tax lien will generally be filed if a person owes more than $10,000 to the IRS.

The fastest way to stop a tax levy is to pay back your amount owed in full. Make sure to contact a licensed tax professional first though to understand what options are available to you, if you cannot pay the amount owed in full.

Some assets are deemed exempt from a tax levy these items include:

  • Unemployment benefits
  • Income from court-ordered child support payments
  • Minimum exemption for salaries/income
  • Tools necessary for profession, business, or trade
  • Worker’s compensation
  • Assistance under the Job Training Partnership Act
  • Certain pension and annuity payments
  • Principal residence
  • Household items and furniture
  • Certain disability payments connected to service

You have a legal right to appeal a tax levy enforced upon you, but you must be fast! The IRS can start seizing your assets within 30 days of sending the notice. You can also file an appeal that will put your case on hold until the appeal process is complete.

To schedule a consultation with Strategic Tax Resolution please call our main office line (888) 339-4914 or visit our Contact Us page.