IRS Lien vs Levy – Key Differences

Understanding IRS Liens and Levies

When dealing with the Internal Revenue Service (IRS), taxpayers may encounter various enforcement actions used to collect unpaid taxes. Two of the most critical and often misunderstood actions are IRS liens and levies. While both are tools for the IRS to secure debts, they differ significantly in their implementation and impact on a taxpayer’s financial circumstances.

What is an IRS Lien?

An IRS lien is a legal claim against a taxpayer’s property when they fail to pay a tax debt. It encumbers all the taxpayer’s current and future assets until the tax debt is fully paid. The lien serves to protect the government’s interest, ensuring it can eventually collect the owed amount.

How an IRS Lien Works

Once the IRS assesses your tax liability and sends a bill demanding payment, failure to pay will trigger the filing of a Notice of Federal Tax Lien. This notice informs creditors of the government’s legal right to your property. A lien covers real estate, personal property, financial assets, and future assets acquired during the lien's duration.

Being subject to an IRS lien can severely impact credit scores, making it difficult to secure loans or sell property. Additionally, it remains attached until the debt is settled or becomes unenforceable by law.

Resolving an IRS Lien

To resolve an IRS lien, several options are available:

• Full Payment: Paying the debt in full will lead the IRS to release the lien within 30 days.
• Lien Withdrawal: Under the IRS’s Fresh Start Initiative, a withdrawal might be granted after a lien is released, improving the taxpayer’s credit standing.
• Installment Agreement or Offer in Compromise: Initiating these agreements may also prompt the IRS to withdraw the lien, contingent upon meeting certain conditions.

What is an IRS Levy?

An IRS levy is an actual seizure of property to satisfy a tax debt. It is more aggressive than a lien and involves the actual taking of assets such as bank accounts, wages, and social security benefits.

How an IRS Levy Works

Before proceeding with a levy, the IRS must follow a series of procedural steps:

• Assess the tax and demand payment through a Notice and Demand for Payment.
• Send a Final Notice of Intent to Levy and Notice of Your Right to a Hearing, providing 30 days to pay or contest.
• Upon receiving a levy, the taxpayer can dispute through a Collection Due Process (CDP) hearing to negotiate alternatives like an installment agreement.

Preventing and Removing Levies

To address or prevent levies:

• Pay the Tax Debt: Settling the debt will stop a levy from being executed.
• Negotiation: Engage with the IRS for a payment plan or Offer in Compromise.
• File for Bankruptcy: Certain types of bankruptcy can halt a levy process.

Key Differences Between IRS Liens and Levies

A common question is how these actions differ:

• Nature of Action: A lien is a claim; a levy is a seizure.
• Impact: A lien affects credit; a levy involves loss of property.
• Order of Events: A lien generally precedes a levy.

Actionable Steps

Here are steps to mitigate IRS enforcement actions:

• Review IRS notices carefully for deadlines and options.
• Consider professional consultation for tailored advice.
• Explore resolutions like installment agreements or Offers in Compromise.
• Monitor assets to avoid unexpected levies.

Conclusion

IRS liens and levies represent serious actions that require prompt attention. Understanding their differences and how to address or prevent them can safeguard financial health and property.

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