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Tax liens and levies: what’s the difference?

On Behalf of | Sep 10, 2021 | Tax Law |

People usually confuse tax liens with levies, but they are not the same. The Internal Revenue Service (IRS) issues tax liens and levies when a person fails to pay their tax debt. However, a lien is the government’s intention to seize your property, whereas a levy is the actual seizure process. Both are undesirable, and each has consequences for the taxpayer if they fail to address the problem.

Tax lien

A tax lien is the government’s legal claim against a taxpayer’s property. A federal tax lien arises when the IRS had sent a Notice and Demand for Payment to the taxpayer, but they neglected or refused to pay the debt. What the lien does is secure the person’s payment of that debt. The lien protects the government’s interest in all the person’s property, including real estate, vehicles, business property and other financial assets. When a person gets a lien, the IRS files a public document, the Notice of Federal Tax Lien, to let creditors know that they have the right to the taxpayer’s property.

Filing for bankruptcy will not get rid of a tax lien. The best way to get rid of a lien is by paying the tax debt in full. Once the taxpayer pays their debt, the IRS will remove their lien 30 days after.

Tax levy

The IRS will send a Notice of Intent to Levy when they repeatedly ask a taxpayer to pay their bills and get no answer. They also send this notice when they believe that the taxpayer will sell their property and take the money instead of paying what they owe. With a levy, the IRS can seize the following property and assets:

  • Real property
  • Business assets
  • Motor vehicles
  • Money in bank accounts
  • Safety deposit box content
  • Wages

The IRS won’t collect the property immediately after sending the notice. The taxpayer has 30 days to request a collection due process hearing to avoid the seizure of their property.

Getting rid of liens and levies

A person can eliminate a lien or levy by paying what they owe. However, the IRS gives the taxpayer other options when they cannot afford to pay it. There are different ways in which a taxpayer can get rid of a lien or levy, and an experienced tax lawyer can help them determine what steps they should take considering their specific circumstances. The taxpayer who gets a notice of levy or lien must act quickly to solve the problem. Otherwise, they risk losing their property.

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