You can prevent further actions and penalties by taking swift action after receiving notice of an IRS tax levy or lien. The IRS commonly uses these two methods, among other recuperative steps, to recover tax debt from consumers.
It helps to understand the difference between a lien and a levy. When comparing a levy vs a lien, a levy is often the most challenging form of collection action.
You can prevent the IRS from taking ownership of your assets to satisfy tax debts. By understanding how levies and liens work, you can return to good standing with the IRS and reclaim rightful ownership of your property.
The Difference between a lien and a levy
A levy is a legal action that the IRS pursues to satisfy your tax debt. However, a levy is different from an IRS tax lien.
A tax lien is an IRS claim against your property to satisfy a debt. A levy, however, occurs when the IRS takes possession of property to repay a tax debt.
The Notice of Federal Tax Lien is a public document that informs creditors that the government has a legal right to assets. The IRS will issue a lien after sending a tax bill if a consumer fails to pay their debt.
When the IRS files a federal tax lien, they are informing creditors that they have first rights to claim your property. You can appeal a federal tax lien, however, by filing a collection appeal.
One difference between a tax lien vs a tax levy is that a levy is not public record and does not go on your credit report. A federal tax lien, however, can – and will – affect your credit.
Precisely what Is an IRS Tax Lien?
A tax lien is an official demand issued by the Internal Revenue Service to satisfy a tax debt. Sometimes, it’s called a secret lien because there is no initial public record of the action. Still, a lien attaches to your property as soon as the IRS issues it.
At risk assets can include real estate and personal property that you own as of the date the IRS issued the lien. For example, if you give land to someone before receiving a notice but after the IRS issues a lien, the agency may continue to claim that property to satisfy your tax debt. Most often, this scenario occurs during divorce proceedings.
Nevertheless, some parties are safe from secret liens. Typically, the IRS will not pursue action against a third party that has paid fair market value for a property.
As an example, imagine that you sold your home on the real estate market and at the same time the IRS issued a tax lien notice. Typically, the IRS cannot place a lien on that property. If, however, the third party paid less than full market value, the IRS may still pursue that property to satisfy your tax debt.
A closer look at an IRS tax levy
An IRS tax levy is not public information. It does not affect your credit or affect your ability to sell a property.
The IRS, for example, can issue a levy on your bank account. The bank is then required by law to send your money to the IRS.
The IRS, however, cannot take immediate possession of your funds. Federal law requires the bank to hold your funds for 21 days. The bank will most likely inform you when the IRS places a levy on your account.
It’s important to note that the 21-day limit starts when the IRS places the levy – not when you receive notice of it. The 21-day window is critical. During that time, you can negotiate to have your funds released.
It is difficult to convince the IRS to release funds from a levy. Often, you’ll need a tax specialist to negotiate on your behalf to successfully reclaim your funds. Also, the outcome of the levy will depend on factors such as the amount of money in your account, the value of your other assets and your income and expenses.
Dealing with notice of a federal tax lien
If you receive notice of a federal tax lien, you have 30 days after you receive the notification letter to request a due process hearing. Once you make this request, you have a short time to present the IRS with a compelling reason not to place a lien on your assets.
You can also make an installment agreement. If the IRS agrees to the deal, they may release the levy. If you request an installment agreement, the IRS will ask for a great deal of information before granting your request
You can also request an Offer in Compromise (OIC). Although the IRS has grown more amenable to this kind of agreement in the last few years, the agency denies more than half of all OIC requests.
An IRS collection appeals program is another alternative for stopping a lien. If you request this method to satisfy your debt, you must provide the IRS with an immediate resolution. Take note that if the IRS allows you to enter a collection appeals program, there’s no judicial review.
The most important thing to remember is to take action fast, before the IRS issues more penalties.
Know when to get help
IRS regulations are often confusing, and they change every year. When deciding on the best course of action after receiving an IRS levy or lien, you must also think about what will work best for your financial situation and tax liabilities.
Not all taxpayers will qualify for every option there is to resolve a tax levy or lien. Tax relief specialists deal with the IRS regularly. Some tax firms even hire former IRS agents and tax attorneys who are highly familiar with the inner workings of the federal agency.
They can help you decide which options are best for resolving an IRS tax levy or lien. Also, a tax specialist can help you structure a payment plan that fits in your budget but still satisfies the IRS. Accordingly, it makes sense to reach out to a tax specialist who knows what terms the IRS is more likely to accept to relieve your tax levy or lien.