July 24, 2015

7467255_sWhat is the Difference Between a Tax Lien and a Tax Levy?

A federal tax lien and a tax levy are two powerful tools used by the IRS to collect back taxes. Although the two are often discussed together, each gives the IRS different rights against you. While the tax lien provides the IRS security in your property, the levy entitles the IRS to take it.

Tax Lien

A tax lien refers to the legal right of the IRS to your property and assets. If you owe a substantial amount of money to the IRS, the IRS will file a tax lien against you. The lien attaches to any property belonging to you at the time the lien is filed, as well as to any property acquired after the lien is filed. In most instances, a tax lien impacts real estate.

Prior to 2011, the IRS would automatically file a lien if an individual owed the IRS more than $5,000. As of 2011, however, the IRS will typically only file a lien if an individual owes more than $10,000.

In order to put your other creditors on notice that the IRS has a claim on all of your real and personal property, the IRS files a Notice of Federal Tax Lien. The IRS typically files a federal tax lien with the clerk of court where you live or where your property is located. It does not enumerate the property it attaches to, but instead automatically impedes on all of your real estate and other personal property in the county where the lien is filed.

If a lien is filed against you by the IRS, you are given 30 days to file an administrative appeal to request for a reconsideration of the filing—also called a collection due process appeal.

It must be noted that any company or individual pulling a credit report on you will be able to see this tax lien, which could potentially damage your borrowing ability and make it difficult for you to sell or refinance your home, or even get a credit card, auto, or business loan. In some instances, a tax lien may even make it difficult for you to get a job.

A tax lien is released when it is either paid or when the amount due is adjusted. It typically expires in ten years, or when the IRS statute of limitations on collection expires.

Tax Levy

An IRS tax levy is the actual seizure of your property in order to satisfy a tax debt. Once a federal tax lien is imposed, the IRS may usually seize or levy your property after notifying you of the intent to levy and the right to a hearing.

For most individuals, it is the levy—and not the lien—that causes more damage. The IRS can seize your car, house, and even your business equipment. They can also levy your bank accounts, wages, accounts receivable, and retirement accounts.

There are a few specific things that the IRS cannot levy. Among the exemptions listed in the Internal Revenue Code are the right to keep workers compensation, unemployment benefits, tools necessary for your work, and most household goods.

The IRS must first send you a Final Notice of Intent to Levy before it can levy on your property. This notice stipulates that the IRS intends to start enforcement against you, and that you have 30 days to file an appeal of the planned IRS collection action. The IRS cannot take action until the hearing is completed if you file an appeal. At a hearing you may be able to reach a resolution such as an installment agreement or offer in compromise.




Categories: Blog, IRS, Tax Levies