Written by attorney Erica Good Pless

Tax Lien versus Tax Levy

Many people use the terms "lien" and "levy" interchangeably but they are two very different IRS enforcement and collection tools. Taxpayers should be aware of the differences.

When a tax liability is unpaid, the IRS is permitted to file a federal tax lien, which is the government's way of securing its interest in a taxpayer's property. When properly filed, a federal tax lien attaches to all property and rights to property, whether real or personal, to the extent of the taxpayer's interest in the property.

The amount of the lien should equal the amount of taxes, interest, and penalties that the taxpayer owes for the period in question. The IRS does make mistakes when filing liens, so it is important to make sure all proper procedures were followed, including that the taxpayer's name and amount is correctly identified on the lien.

Unfortunately, a federal tax lien is a public document and is easily accessed on county websites, meaning that other people will know when a federal tax lien has been filed against you. A taxpayer's social security number should not be visible on publicly filed tax liens. If your social security number is visible on a federal tax lien, you have the right to request that it be removed from public records.

Federal tax liens are reported to the credit bureaus, which can negatively affect credit scores and hinder the ability to borrow funds.

Generally, a tax lien is not released until the IRS either receives full payment of the liability or the collection statute has expired. However, in certain circumstances, taxpayers can apply to have a tax lien withdrawn, subordinated or discharged without the liability being fully satisfied.

A tax levy is very different from a tax lien. When the IRS issues a tax levy they are forcibly seizing or taking property from the taxpayer. It is quite common for the IRS to levy bank accounts, salaries, wages, and other rights to payment.

Bank levies are usually one-time levies, meaning that the IRS can only take the amount of money that is in the account at the time the levy is issued, but not in excess of the tax liability. The bank is required to hold the funds for 21 calendar days before sending the money to the IRS. This holding period allows the account owner time to get the levy released or work out a payment alternative with the IRS.

Continuing levies, such as levies on wages or salaries, are not one-time levies. This means that the levy remains in force until it is released by the IRS.

In most cases, the IRS is required to send notice and demand of its intent to levy on the taxpayer. A letter titled, Final Notice of Intent to Levy and Notice of Your Right to a Hearing should be sent to the taxpayer 30 days prior to levy action. This letter usually comes certified so it is best to open all IRS mail, even though it may be intimidating. If the taxpayer timely files for a Collection Due Process hearing, the IRS cannot issue levies until the case has been processed through Appeals.

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