Tax issues arise for various reasons, and their implications range from mild to severe. Liens and levies are two severe problems that all taxpayers want to avoid. These types of tax issues will affect not only your finances but also your assets.
So, what are the differences between a tax lien vs tax levy? Let’s explore these topics today.
What Is a Tax Lien?
Definition and Purpose
A tax lien is a tool employed by the IRS to secure outstanding debts by legally placing a claim against taxpayers’ assets. A tax lien entails filing a legal document that informs the public of the government’s legal claim against the taxpayer’s assets.
What a Lien Affects
Once a tax lien has been filed, the IRS has precedence over other parties in claiming your assets, which include real estate, personal property, and financial assets.
When Is a Tax Lien Filed?
A tax lien is filed after several notices to the debtor have been sent, informing the taxpayer of outstanding tax liabilities.
If taxpayers neglect these notices, the IRS can issue a Notice of Federal Tax Lien, a public notice informing them that they have claimed the assets of the concerned persons or businesses.
What Is a Tax Levy?
Definition and Purpose
A tax levy is the legal seizure of property and assets to repay outstanding obligations. Levies can occur when taxpayers continually ignore IRS letters or notices. In contrast to a tax lien, which is a legal claim on the taxpayer’s assets, a levy is the actual collection action.
What the IRS Can Levy?
The IRS has the authority to levy everything from bank accounts to wages, real estate, automobiles, and retirement savings.
When Does a Tax Levy Occur?
A tax levy is imposed when individuals and businesses continue to fail to pay their tax bills.
The IRS sends multiple notices, including a Notice of Federal Tax Lien and a Final Notice of Intent to Levy, to notify taxpayers of the tax issue and provide them with the opportunity to resolve the issue using the various available options.
Key Differences Between a Tax Lien vs Tax Levy
| Feature | Tax Lien | Tax Levy |
| Type of Action | Claim to property | Seizure of property |
| Impact | Affects the ability to sell | Immediate loss of funds/assets |
| Notice Required | Yes, Notice of Federal Tax Lien | Yes, Final Notice of Intent to Levy |
| Asset Seizure | No | Yes |
| Resolution | Pay debt, installment agreement, appeal | Urgent legal action is required to prevent loss |
How Liens and Levies Affect You
Financial Consequences
When it comes to the financial consequences of liens vs levies, both will have a significant impact on your finances.
These two actions can restrict your access to your finances and assets, such as being unable to withdraw money due to a bank freeze, having accessible funds decreased due to wage garnishment, or being unable to sell or refinance your property.
This can all result in financial difficulty, not to mention the mounting penalties and interest that accrue from unpaid debts.
Legal Consequences
Liens and levies also carry the same legal implications.
As the IRS is a legal entity supported by the country’s laws, it takes efforts to ensure taxpayers fulfill their tax obligations. Any requests that are not met will result in legal ramifications. For instance, ignoring these notices can result in asset seizure and the creation of a public record, which will notify others of the claim on your property, potentially complicating any subsequent legal issues.
Can a Lien or Levy Be Removed?
Removing a Tax Lien
There are various options for removing a tax lien. The first step is to settle all tax debts in full, including fines and interest.
Once paid, you must still request a withdrawal using Form 12777. The IRS will typically remove the lien within 30 days and provide the taxpayer with a Certificate of Release of Federal Tax Lien.
Discharge or subordination are other options to stop a tax lien temporarily.
A discharge is an option if you need to sell or transfer a specific property; you can request a discharge (Form 14135) to remove the lien from that property. The IRS may approve if the property’s worth exceeds the tax liability and the IRS receives an equivalent amount (for example, sale proceeds).
A subordination permits other creditors to take precedence over the IRS lien (Form 14134), facilitating loans or refinancing. The IRS may agree if it facilitates debt repayment without removing the lien.
Releasing a Tax Levy
Levies, like tax liens, can be removed by paying the entire amount owed. Settling with the IRS through an agreement, such as an Offer in Compromise or Installment Agreement, also halts any collection activities as long as the individual or business adheres to the arrangement.
Another way to release a tax levy is to prove that the levy causes immediate economic hardship (e.g., inability to pay for basic living expenses). Request for relief by filing Form 1127.
Lastly, if you believe there was an error that resulted in the levy, you can file an appeal (Form 12153) within 30 days of receiving the IRS levy notice. The levy may be suspended until the validity of the challenged levy is determined.
What Should You Do If You Receive a Lien or Levy Notice?
Receiving a notice of lien or levy is understandably distressing. However, if you have reached this point, you should take precautions to prevent further complicating the situation. As we covered in this article, there are steps you can take to avoid the problem from escalating, such as paying off all debts or getting into a payment agreement with the IRS.
Your choice should also be based on your specific situation. That is why you should be diligent and informed while making a decision. Consult with a professional to ensure the best potential outcome for your situation.
How Greenberg Law Group, P.A. Can Help
Greenberg Law’s team of tax professionals has extensive experience managing a variety of tax matters, including liens and levies. We understand the process and know how to devise the best resolutions for your specific circumstance.
It is of utmost importance that if you are experiencing tax issues, you should not delay taking action. The more you delay, the more problems will come your way.
Contact us immediately, and let’s develop a specific approach to prevent the issues from escalating.
