Understanding the Key Differences Between IRS Levies and Liens

When dealing with the IRS, knowing the terms can help you feel more in control of your tax situation. Two critical concepts are "levy" and "lien." While they sound similar, they represent different actions taken by the IRS. This post breaks down the key differences between IRS levies and liens, helping you navigate your tax situation more effectively.

What is an IRS Lien?

An IRS lien is a legal claim against your property when you fail to pay your tax debt. It acts as a public record that informs others, including creditors, that the IRS has a claim on your assets. This can include real estate, personal property, and financial assets.

For example, if you owe $15,000 in taxes and the IRS files a lien, it indicates to potential lenders that they may not have priority over your assets. Though the lien does not mean the IRS will immediately take your property, it complicates your ability to sell or refinance your home or get a loan. In fact, a lien can lower your credit score by up to 100 points and affect your ability to secure financing.

The IRS typically files a lien after sending you a bill and if you have not responded or made arrangements to pay. This means that if you owe back taxes, addressing the issue is essential before a lien is filed.

What is an IRS Levy?

An IRS levy, however, is a more aggressive action. It allows the IRS to seize your property or assets to satisfy your tax debt. This can involve garnishing your wages, taking funds from your bank account, or seizing personal property. Unlike a lien, which merely creates a claim, a levy is an actual action taken to collect the owed taxes.

For instance, if the IRS issues a levy on your wages, they could take a chunk—up to 25%—of your paycheck until your debt is satisfied. A levy typically happens after you've ignored previous notices. Importantly, the IRS must send you a final notice of intent to levy at least 30 days before they can initiate this action. This gives you a crucial window to resolve your tax issues.

Key Differences Between Levies and Liens

Nature of Action

The primary difference between a levy and a lien is the nature of the action. A lien is a claim against your property, while a levy is the actual seizure of your property.

Impact on Property

• A lien affects your ability to sell or refinance your property but does not take it away.

• A levy results in the loss of your assets, such as funds from your bank account or a portion of your wages.

  
  

Notification Process

Before filing a lien, the IRS must notify you of your tax debt, giving you a chance to pay. In contrast, a levy can occur after the IRS has sent you a final notice of intent to levy, leaving you a limited time to respond.

Duration

An IRS lien remains until the tax debt is paid in full. A levy can be a one-time action or ongoing, depending on your situation.

Steps to Address IRS Liens and Levies

If you face an IRS lien or levy, it’s crucial to act quickly. Here are some steps you can take:

1. Understand Your Tax Situation: Review your tax records to clarify how much you owe and why the IRS has taken action. Knowing hard numbers is empowering and can help prioritize your approach.

   
   

2. Contact the IRS: Reach out to the IRS to discuss your options. They may work with you to set up a payment plan or offer other forms of tax relief, such as an Offer in Compromise.

   
   

3. Professional Guidance: If tax matters seem overwhelming, consider consulting a tax professional. They can provide targeted advice and help you navigate the complexities involved.

   
   

4. File an Appeal: If you believe the IRS made a mistake, you have the right to appeal their decision. This process can be lengthy, but it is worth exploring if you feel justified.

   
   

5. Pay Your Taxes: The most direct way to resolve a lien or levy is to pay your tax owed. If you cannot pay the full amount, consider negotiating a settlement with the IRS, which could reduce your obligations.

   
   

Final Thoughts on IRS Actions

Understanding the differences between IRS levies and liens is essential for anyone facing tax issues. Both actions are serious but represent different stages in the IRS collection process. A lien establishes a claim against your property, while a levy allows for the seizure of assets.

If you owe back taxes, acting quickly is key. Knowledge about your rights and options provides a pathway toward resolution, reducing the impact on your financial future.

A close-up view of a tax document and a calculator on a wooden table

Remember, you are not alone in this process. Many professionals specialize in tax resolution and can help you tackle the complexities of dealing with the IRS. Do not hesitate to seek assistance if you need it. Go ahead and book your free resolution call today.