IRS Tax Liens and Levies Explained
When confronting unpaid federal taxes, consumers often hear the terms 'lien' and 'levy' used interchangeably. However, these represent completely different stages of the IRS collection process. A tax lien is a legal claim against your property to secure payment of a tax debt, while a tax levy is an actual seizure of your assets to satisfy that debt. Understanding the differences between liens and levies, and the strategies to secure a levy release, is essential to protecting your wages, bank accounts, and property.
The NOTICE of Federal Tax Lien
A federal tax lien is a legal claim against your assets, including your home, vehicle, and financial accounts. The IRS files a Notice of Federal Tax Lien to notify creditors and credit bureaus that the government has a legal right to your property.
While a lien does not seize your property, it can make it difficult to sell or refinance assets. The lien attaches to all of your current and future property, and will severely affect your ability to secure credit or loans.
The Active Seizure of an IRS Levy
A tax levy is an active seizure of your assets. The IRS has the legal power to levy your bank accounts, garnish your wages, seize your physical property, and redirect your federal payments to satisfy your tax liability.
Before levying your assets, the IRS must send a series of notices, culminating in a Notice of Intent to Levy and Notice of Your Right to a Hearing. If you ignore these notices, the IRS will proceed with the seizure, which can lead to severe financial distress.
Securing an IRS Levy Release
To secure a levy release, contact the IRS immediately. The IRS is legally required to release a levy if you can prove that the seizure causes immediate financial hardship, meaning you cannot cover basic household living expenses.
Alternatively, you can secure a release by setting up an installment agreement, qualifying for Currently Not Collectible status, or submitting an Offer in Compromise. Acting quickly during the 21-day freeze period is essential to protecting your funds.
Frequently Asked Questions
Major credit bureaus removed tax liens from credit reports in 2018. While a lien may not directly lower your credit score, it remains public record and can be uncovered by lenders, housing providers, and employers.
Under federal law, banks must hold funds seized by an IRS levy for exactly 21 days before sending them to the government. This hold provides a brief window to negotiate a levy release with the IRS.
Yes. The IRS has the legal authority to levy qualified retirement accounts like 401(k)s and IRAs, but they typically only do so in cases of flagrant non-compliance and if no other assets are available.
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