What’s the Difference Between a Lien and a Levy?

The IRS has many ways to collect back taxes. Two of the most common tax collection methods are Federal tax liens and tax levies. The difference is a tax lien does not result in the IRS taking your property, which a levy does. You have the right to defend against the filing of a lien, as well as prevent issuance of a levy. It’s important to understand the tools the IRS uses in determining this.

A lien is filed with the Secretary of State as security that a debt will be paid from proceeds when a taxpayer sells personal or real property. Levies are a specialized warrant used to withdraw funds from a taxpayer’s financial institution account or garnish a taxpayer’s wages. They are generally used when a taxpayer has failed to resolve their debt through voluntary payment.

IRS Tax Lien

The IRS will file a lien when the agency feels there is a chance that collection is at risk. It does not just take your things. Filing a tax lien is normally determined by the dollar amount. The Notice of Federal Tax Lien is filed in the public records office and then attached to any type of property you own. If you happen to sell that property, proceeds will be used to satisfy the lien. Now that the lien is filed, the equity belongs to the IRS.

The IRS files its Federal tax lien in the county where you reside. It must be filed in the county where property is located for the tax lien to affect real estate. Anyone pulling a credit report on you will see the tax lien on your record. This could harm your borrowing chances, making it difficult to get a credit card or business loan, auto loan, or refinance your home. However, if your balance dips under the $10,000 mark, the IRS will not withdraw a lien. You can request a lien release using Form 12277, Application for Withdrawal.

Keep in mind: If the IRS files a lien against you, you have 30 days to file an administrative appeal to request reconsideration of the filing. This is known as a collection due process appeal. The lien will expire within 10 years, when the IRS statute of limitations on collections runs out.

IRS Tax Levy

An IRS levy means to actually take your property. As in, a seizure or garnishment. The IRS may levy on your bank accounts, wages, subcontractor pay, accounts receivable, and even retirement accounts. The IRS takes no mercy in seizing your house, car, or even business equipment. For most, it is the levy, which causes a hardship, not the lien. There are very few things that the IRS cannot levy. This can include: the right to keep unemployment benefits, workers compensation, most household goods, and some tools of trade from the IRS.

In addition, they have to send a notice first that the IRS intends to start enforcement against you. It’s called a Final Notice of Intent to Levy. Once it is received, you have 30 days to file an appeal of the proposed IRS collection action. Once it is filed, the IRS is prevented from taking any action until your hearing is completed. The hearing is an opportunity to reach a resolution to levy action before it occurs. As in, an offer in compromise, uncollectible status, installment agreement, etc. Keep in mind, the final notice of intent to levy is the ONLY notice the IRS will send before levying your bank accounts, wages, etc.

The IRS is very aggressive when it comes to liens and levies. It’s imperative that you keep informed of your rights, as well as the systematic process of it all. Let us represent you. Contact Dallo Law Group today to help conquer your IRS problems all at once. You will not have to communicate with the IRS any longer.