IRS Lien vs Levy – Key Differences

Understanding IRS Liens and Levies

The terms 'lien' and 'levy' are often used interchangeably when discussing IRS actions against taxpayers, but they have distinct implications. It's crucial to understand these differences, particularly for those facing financial difficulties with the IRS. A lien and a levy each represent different stages in the IRS's process of collecting unpaid taxes.

What is an IRS Lien?

An IRS lien is a legal claim against your property when you neglect or fail to pay a tax debt. It signals the IRS's intent to protect its interest in your assets. The lien arises after the IRS assesses your liability, sends you a bill (Notice and Demand for Payment), and you fail to pay the debt timely.

Key characteristics of an IRS lien:

• Attachment: Liens attach to all your assets, including real estate, bank accounts, and vehicles.
• Public Record: Once filed, a lien becomes a public record. This can damage your credit score and affect your ability to obtain loans or lines of credit.
• Duration: The lien continues until you satisfy the debt or it becomes unenforceable through lapse of time. Typically, the statute of limitations is ten years from the tax assessment date.

What is an IRS Levy?

An IRS levy is a direct seizure of property or assets to satisfy a tax liability. Unlike a lien, which is a claim, a levy allows the IRS to legally take your property to settle your debt.

Key characteristics of an IRS levy:

• Seizure: Levies enable the IRS to seize and sell your property, including real estate, vehicles, and personal belongings.
• Bank and Wage Levies: The IRS can levy funds directly from your bank accounts and wage garnishments from your employer.
• Notice Requirement: Prior to issuing a levy, the IRS sends a Final Notice of Intent to Levy and Notice of Your Right to a Hearing at least 30 days before the levy.

IRS Programs for Managing Liens and Levies

Various IRS programs can help taxpayers manage or even remove liens and levies:

Installment Agreements

An Installment Agreement allows taxpayers to pay off their taxes over time in manageable amounts. Eligibility depends on your ability to make monthly payments and the total amount owed. According to IRS guidelines, those who owe less than $50,000 may qualify for a streamlined installment agreement.

Offer in Compromise (OIC)

An Offer in Compromise allows you to settle your tax debt for less than the full amount you owe. The IRS considers your ability to pay, income, expenses, and asset equity. Not all taxpayers qualify, and it's often wise to seek professional assistance when applying for an OIC.

Collection Due Process (CDP) Hearing

You have a right to challenge a levy through a CDP hearing within 30 days after receiving a Final Notice of Intent to Levy. This can also apply to lien disputes, providing an opportunity to negotiate or contest the IRS's plans.

Actionable Steps to Address IRS Liens and Levies

The best way to tackle IRS liens and levies is through proactive financial management and timely communication with the IRS. Here are the steps you can take:

• Review IRS Notices: Don’t ignore IRS notices. Review them carefully to understand your tax situation and the urgency required.
• Contact the IRS: Reach out to the IRS immediately if you receive a notice of lien or levy. You may be able to negotiate a payment plan or extension.
• Consider Professional Help: Given the complexity of IRS procedures, consulting with tax relief professionals can be beneficial. They can offer expertise in negotiating with the IRS and exploring relief options tailored to your situation.
• Explore Relief Programs: Look into programs like Installment Agreements or Offer in Compromise to find a feasible solution to resolve your tax liabilities.

Conclusion

Understanding the differences between liens and levies is essential for any taxpayer facing IRS actions. While an IRS lien is a legal claim on your property, an IRS levy involves the seizure of your assets. Both situations can be managed or resolved with the right approach and professional guidance.

For assistance in navigating IRS liens and levies, visit our dashboard for professional help tailored to your needs.