IRS Liens and Levies: Understanding the Difference

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When a person doesn’t pay their taxes, the IRS takes notice. There are several things the Internal Revenue Service (IRS) will do when it comes to ensuring a person pays their tax burdens. They will either issue a lien or a levy.

One of the best ways to prevent either of these from happening is to pay your taxes, pay your tax debts and pay attention to all correspondence you get from the IRS. There are payment options available, allowing you to settle your debt over time – and preventing you from learning about liens and levies the hard way.

Lien

A federal tax lien from the IRS is a legal claim on your property. Should you fail to pay your tax debt; a lien will be placed to protect the government’s interest on your real estate property, your personal property and even your financial assets.

A lien can take place once the IRS assesses your debt, sends you a “Demand for Payment” and you either refuse or neglect to pay your debt by the due date. Additionally, the IRS will file a public document that informs all creditors that the government has legal right to any and all of your property.

Consequences of a Lien

When you have a tax lien on your property, it can make it harder for you to get credit. The lien will attach to all property that you own, including vehicles, securities and property. Any future assets you get while it is in affect will also be attached to it. If you have a business, that will also be included in your business property assets, including your accounts receivable.

A lien is very different from a levy. A lien is simply the government taking interest in your property until you pay your taxes, essentially acting as collateral. A levy is when the government actually seizes your property in order to pay for your tax debt. The latter is more serious and is generally not something done unless you have either ignored all correspondence or you have failed to make arrangements to satisfy the debt in a timely manner. In this case it may be wise to contact a tax attorney (Steve Klitzner - www.FloridaTaxSolvers.com) to help sort out the issue with the IRS.

Levy

A tax levy from the IRS can be done so that they may sell the property and then satisfy the debt. They can size all property such as cars, boats and houses. They can also levy property that is yours but is held by another institution, such as income, retirement and bank accounts, income from rental properties, cash loan value of life insurance or even accounts receivable from your business.

The only time a levy takes place from the IRS is when all three of the following requirements are met:

·         Tax has been assessed and a Demand for Payment has been made

·         You have refused or neglected to pay

·         A final notice for the intention to levy has been sent out. The notice will be sent a minimum of 30 days before putting the levy in place.

Liens and levies are in place to ensure you satisfy your tax debt. In some instances they can be lifted, at least temporarily, so you will need to work with the IRS to learn about your options.