The circumstances leading up to an IRS lien and levy are similar, and both are used by the IRS to satisfy tax debt. The two words even sound a little bit alike! It’s understandable that sometimes taxpayers facing IRS tax problems believe a tax lien to be the same as a tax levy. However, there is a difference between a lien and a levy, as we recently explained to a local Boca Raton taxpayer.
Tax Lien vs Tax Levy
So, what is the difference between a lien and a levy? A lien is a claim against your property, while a levy is the process that actually takes your property. Let’s take a closer look at each to better understand how they can impact you.
A tax lien establishes the IRS’s claim to your property and becomes public when a Notice of Federal Tax Lien is filed in the county where you live, where your real estate or your business is located. A federal tax lien is a claim on any property you currently own or acquire in the future, including real estate, personal property, and financial assets. The IRS does not need to name specific property in the lien. Rather, it covers all property in your name (even if you’re a co-owner). Typically, the IRS will not file a lien if you owe less than $10,000.
When the IRS files a tax lien they do not take your property or rights to your property. The Notice lets the public, including your other creditors, know that you owe back taxes. A tax lien makes it difficult to secure a loan, which in other cases could be used to pay off tax debt. If you find yourself with a federal tax lien, you can request reconsideration of the filing with an appeal via a Collection Due Process (CDP) Hearing within 30 days of the IRS filing the lien.
Although there are certain circumstances under which taxpayers may be able to reduce the impact of an IRS lies, it will generally remain in force until you pay the outstanding balance or the statute of limitations expires, which in most cases is 10 years.
A tax levy is the physical seizure or garnishment of your assets. The IRS must issue a “Final Notice of Intent to Levy and Right to a Hearing” before they can take your property. If you don’t properly respond to the notice within 30 days they will proceed to levy your financial assets and property. This includes bank accounts, wages, retirement accounts, rental income, accounts receivable, vehicles, real estate, etc. To avoid the IRS levying or seizing your property, it’s best you act within 30 days after receipt of the notice to request a CDP Hearing. The purpose of the hearing is to reach a resolution with the Office of Appeals by proposing a collection alternative such as an installment agreement, offer in compromise, not collectible status or another remedy.
If you’re facing a lien or a levy from the IRS, remember that you have appeal rights and other tax resolution options. If you live or work in Boca Raton or elsewhere in South Florida and are experiencing tax problems, contact East Coast Tax Consulting Group for a free consultation.