Recently, I found out that many clients who come to JK Harris are not aware of the difference between a tax lien and a tax levy. Since there is a significant difference between the two, I thought it would be a good topic to discuss on our blog.
A tax lien gives either the federal or state government (depending on who is filing the tax lien) a legal claim to your property as security of payment for your back tax debt. According to the IRS’ website, the IRS will issue you a Notice of Federal Tax Lien after the following requirements have been met: the IRS has assessed your back tax debt, they have sent you a Notice and Demand for Payment and you have still neglected to fully repay your tax debt within ten days of receipt of the notice.
If those requirements are met, a tax lien is created and filed against your property. This publicly notifies any creditors that the government (be it state or federal) has a legal claim in your property – and this includes any property you purchase after the lien is filed.
A lien attaches to all of your property (land, home, car, etc.) and to all rights to your property (accounts receivable, if you own a business). Tax liens can harm your credit – they can prevent you from obtaining credit, or buying a car or a home. In some cases, future employers may check your credit and see this information on your credit report.
It is very important to note – a tax lien is only released when you repay the tax debt or submit a bond, guaranteeing payment of the debt. In addition, you are responsible for any fees assessed in association with filing and releasing the tax lien.
A tax levy is a legal seizure of your property to repay a tax liability. A levy is different from a lien since a lien is only a legal claim to your property. A levy actually takes your money or your property to satisfy your back tax debt.
Typically, the IRS levies your wages, federal payments, state refunds or your bank account. It is rare for the IRS to actually levy your property, although it does happen. For a levy, the IRS will issue a Notice and Demand for Payment. If you do not pay, you will receive a Final Notice of Intent to Levy and Notice of Your Right to A Hearing at least 30 days before the levy is due to start. If you still do not pay your tax debt, you will be levied.
It is possible to get a tax levy lifted if they will cause a severe hardship, but a tax lien stays in place until the tax debt has been paid. If you get a Notice and Demand for Payment from the IRS, it is important for you to deal with it right away. IRS problems do not go away if you avoid dealing with them.
For more information on tax levies, visit the Levy page on the IRS website.