What Is the Difference Between A Tax Lien and A Tax Levy?

What Happens When You Owe Money to The Government?

If you neglect to pay your tax debt, you could find yourself on the receiving end of a letter from the IRS. The IRS has the right to collect money owed to the federal government, and state agencies can also impose liens and levies to recover unpaid tax liabilities.

But what are liens and levies, and how are they different?

Too often, citizens are unaware of the IRS’s procedures. It’s important to understand these collection measures so you can protect your financial health.

Here is a short video in which I explain the difference between leans and levies. Below are further details about each process and what to do if you receive notice of a lean or levy.

What is a Tax Lien?

A tax lien is a claim made by the government – state or federal – against one’s property. Essentially, this marks your assets as collateral for the debt you owe. A statutory lien arises immediately upon an assessment of tax. However, a statutory lien is sometimes referred to as a secret lien because it is not known to others. Therefore, it is not effective against any of the following: (1) purchaser; (2) holder of a security interest; (3) mechanic’s liens; or (4) judgment creditor.

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However, the government can make a lien known by recording a Notice of Federal Tax Lien. This perfects the secret lien and makes it effective against the four types of creditors listed above. When a Notice of Federal Tax Lien or State Tax Execution is filed against one’s property, the IRS or state agency is claiming their right to be repaid via your assets. This includes Taxpayer’s right to property at the moment of assessment, once filed, and any after acquired property. For example, if you receive a lien notice, you could not sell or refinance your house without first repaying your debt. Liens are commonly placed against real estate, but also include other personal property.

Liens are filed with the county clerk or recorder in the county where your property resides. Once you receive a Notice of Federal Tax Lien, you only have 30 days to file a form 12253 Collection Due Process Appeal to have the lien withdrawn, subordinated, or discharged. If you do not file an appeal, the lien will be filed and recorded. It is very important to file a response on time. If you do not, you may lose your right to appeal. Thus, to get started with your tax issue consultation click or call 404-551-5838 right now.

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What is a Tax Levy?

A tax levy is when your property is claimed as repayment for your debts. State agencies and the IRS seize assets (such as real estate or bank balances) to recover the money owed to them. “Levy” is synonymous with “garnishment.”

Levies usually occur when a taxpayer fails to respond to repeated collection attempts.

The IRS will send a notice of their intent to levy before your property is seized. Generally, you only have 30 days to file a form 12253 Collection Due Process Appeal to this notification, set up a relief option, or pay your balance before the levy occurs.

There are different kinds of levies. A wage garnishment is a reoccurring levy; a portion of your checks will be claimed by the IRS (or state agency) until your debt is repaid, you have begun a payment plan, or you file for bankruptcy.

Bank levies, however, are singular events. I often refer to them as a “one-time hit.” If your account is levied, it will be frozen for 21 days. You cannot access the money in this account; your debit card will not work, and outstanding checks written from the account will not clear. The 21-day period is intended for you to contact the IRS and set up a relief option such as a payment plan or provide documentation of an inability to pay.

Depending on your circumstances, a one-time bank levy could be much less onerous than a wage garnishment. For instance, say you owe $20,000 to the IRS. They decide to use a bank levy on an account that holds only $5. In that case, that $5 is all the agency can collect. You could deposit $10,000 to that account the day after the levy occurs, and the IRS could not claim it.

The IRS will release the levy as long as the taxpayer is compliance i.e. all missing returns are filed and taxpayer has provided a relief option to resolve the liability such as a payment plan, documentation of a financial inability to pay resulting in a hardship or currently non-collectible status, filed an Offer in Compromise, or filed for bankruptcy relief.

If you receive notice of intent to levy, you should immediately contact a tax attorney. You will only have a short time to resolve the issue before your property is seized. To get started with your tax issue consultation click or call 404-551-5838 right now.

What Can the Government Claim In A Tax Levy?

Levies are mostly taken against:

  • Bank accounts (savings or checking)
  • Retirement accounts
  • Paychecks
  • Real estate

According to Internal Revenue Code 6334, the following property is exempt from levy:

  • School books and uniforms (of the taxpayer or members of their family)
  • Furniture, food, fuel, and personal effects, including livestock and poultry, up to $6,250 in value
  • Books or tools related to a business or profession, up to $3,125 in value
  • Unemployment payments
  • Undelivered mail
  • Some annuity and pension payments
  • Worker’s compensation payments
  • Support payments for minor children
  • Some disability assistance payments
  • Some public assistance payments
  • Assistance received under the Job Training Partnership Act
  • One’s primary residence

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FAQs on IRS Tax Liens and Levies

How Long Before A Lien Becomes A Levy?

A Final Notice of Intent to Levy will be mailed or delivered to you before a levy occurs. The government cannot take your assets within 30 days of sending you this warning.

However, there are some exceptions to this rule. Your tax refund, both state and federal, can be levied within this 30-day window. The IRS can also intervene if they have reason to believe an individual will attempt to sell or otherwise offload property to avoid repaying their debts.

Will a Lien or Levy Affect My Credit?

Liens are public documents. If the credit monitoring agencies become aware of one against you, it could very well affect your credit score. A lien could keep you from assuming additional debt, such as taking out a loan or opening a new credit card.

To remove the lien from your credit report, you will have to contact the credit reporting agencies once the lien is released.

Levies are not entered into the public record and will not affect one’s credit.

How Can I Avoid a Lien or Levy?

The best defense against collection efforts from the government is to file and pay your taxes on time, in full.

If you are unable to pay your taxes fully, do not ignore communications from the IRS. It can be tempting to push-off such problems for another day, but these letters can quickly snowball. Before you know it, months have passed, and you are in danger of receiving a lien notice.

The IRS deals with many individuals and families undergoing financial hardship and cannot repay their full debts. With help from an experienced tax attorney, you can work with the IRS to resolve your debt before a lien or levy is issued. You may even be able to settle your debt for much less than you owe.

How Can a Tax Attorney Help Me?

If you are notified about a lien or a levy, you should immediately reach out to a tax professional.

The IRS is not always right – government agencies get tied-up in bureaucracy, and sometimes paperwork is misplaced or never transferred to the correct department. It is also possible that your tax filings from previous years are incorrect, and the IRS is claiming you owe a debt you do not.

One of my proudest moments as an attorney was helping a recent client who supposedly owed the IRS $800,000. The IRS had garnished his wages for over 2 years; he had been living-off his retirement savings and felt hopeless. He assumed he would never receive another full paycheck again, no matter how long he worked. He came to me expecting to file for bankruptcy.

However, when my office reviewed his finances and contacted the IRS, we determined he didn’t actually owe anything. Within 24 hours of coming to our office, the levy was released and we were able to file amended returns to correct the liability and seeks refund of his garnished wages.

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Atlanta Tax Attorney

There is a short window of time in which you can appeal a lien or levy. While it is possible to do this on one’s own, it’s much safer to navigate this process with a tax professional.

The appeals process is complicated, and without a qualified attorney’s assistance, you could accumulate further debts while you wait for the issue to be resolved.

Whether you live in Atlanta or nationwide and have received notice of a tax lien or levy, The Law Office of Alyssa Whatley wants to help you. To get started with your tax issue consultation click or call 404-551-5838 right now.