IRS Lien vs Levy: Key Differences You Need to Know
Understanding IRS Liens and Levies
Dealing with the Internal Revenue Service (IRS) can be daunting, especially when facing financial penalties such as liens and levies. Although these terms are often used interchangeably, they represent distinct actions by the IRS. Understanding the key differences between a lien and a levy is crucial for taxpayers facing potential collection actions.
What is an IRS Lien?
An IRS lien is a legal claim against your property when you fail to pay a tax debt. The lien protects the government's interest in all your property, including real estate, personal assets, and financial assets. It arises automatically when:
- The IRS assesses your liability.
- Sends you a bill explaining what you owe.
- You fail to fully pay your debt in time.
According to the IRS policies outlined in IRM 5.12.2, a Notice of Federal Tax Lien may be filed only after the taxpayer has received notice of the tax debt and fails to address it. A filed lien is a public record and may affect your credit score.
What is an IRS Levy?
An IRS levy is a legal seizure of your property to satisfy a tax debt. Contrary to liens, which are claims against property, levies are the actual taking of property to obey the tax debt. The IRS can levy:
- Personal property like cars and jewelry.
- Wages, bank accounts, rental income.
- Social Security benefits.
The process includes sending a Final Notice of Intent to Levy and a Notice of Your Right to a Hearing at least 30 days before the levy.
Key Differences Between Liens and Levies
Understanding the differences between liens and levies can help taxpayers take appropriate action:
- Purpose: Liens claim interest; levies seize property.
- Process: Liens arise with assessment; levies follow specific notices.
- Impact on Credit: Only liens impact credit scores.
Actionable Steps for Taxpayers
If you're facing a lien or levy, consider these actions:
- Pay Your Tax Debt: Resolve your debt quickly to release a lien or prevent a levy.
- Consider an Installment Agreement: Setting up a payment plan may stop collection actions.
- Request a Collection Due Process Hearing: This can prevent levies while providing a platform to dispute the debt.
- Apply for an Offer in Compromise: Settle your tax debt for less than you owe.
- Seek Professional Help: Tax professionals can negotiate with the IRS on your behalf.
Visit the IRS Tax Dashboard for personalized assistance.
Frequently Asked Questions
What triggers an IRS lien?
An IRS lien is triggered when you neglect or refuse to pay a tax debt after the IRS has sent you a bill.
Can I remove an IRS lien from my credit?
You may apply for lien withdrawal under certain circumstances, according to Publication 4235.
How can I stop an IRS levy?
Paying the debt or entering a payment agreement can stop a levy.
How long does an IRS lien last?
An IRS lien remains until the tax debt is settled or legally released.
What's the difference between a lien and a levy's effect on assets?
Liens claim interest against assets; levies directly seize them.
Can the IRS levy without notice?
No, the IRS must send a Final Notice of Intent to Levy.
Can I appeal an IRS levy?
Yes, you can request a Collection Due Process hearing to appeal.
Facing an IRS lien or levy can be overwhelming, but understanding your rights and options can significantly mitigate the situation's impact. Contact a tax professional today by visiting our dashboard for tailored assistance in your tax relief journey.