You might have been warned about the power of the IRS to place a lien on your home, bank accounts, or other assets if you don’t pay your taxes. What’s more, the IRS can seize your assets with a levy to satisfy any tax debts they allege you owe. Liens and levies are two distinct tools used by the IRS to collect on your tax liabilities. This blog will explore the main differences between a federal tax lien and levy and offer some advice on what to do.
Notice of Federal Tax Lien
If the IRS believes you owe money, it will send you what’s called a Notice and Demand For Payment. If you receive this letter from the IRS, it is in your best interests to act immediately. This could mean you simply pay off your tax balance or appeal the amount you owe. Regardless, you should not ignore this notice.
If you do, the IRS will likely file a Notice of Federal Tax Lien, which alerts your creditors (and other parties) that it has a legal claim on certain assets of yours. A lien, broadly speaking, attaches to an asset and receives priority if the asset is sold. One of the most common examples of a lien (apart from the context of taxes) is a mortgage. Your house is not automatically seized if you default on your mortgage loan, but if a lender does foreclose on the property for nonpayment, the holder of the lien receives proceeds from the sale before you would receive anything.
Final Notice of Intent to Levy
One difference between levies and liens is that they typically occur in different stages of the collection process. Commonly, the IRS first places a lien on a taxpayer’s property if the taxpayer neglects to pay the amount due. If the lien does not compel the taxpayer to comply with the terms, then the IRS may pursue a levy to seize certain assets belonging to the taxpayer.
A levy does allow the IRS to seize certain property and assets, sell them, and use the proceeds to satisfy a U.S. person’s tax debt. At least 30 days before the IRS levies your assets, the IRS must send you the Final Notice of Intent to Levy and Notice of Your Right to a Hearing. With a levy, the government can seize funds from your bank account, garnish your wages, or sell certain pieces of property.
You Need Representation
Your rights do not disappear simply because the IRS believes you owe money. Depending on your situation, there might be a good chance for you to successfully appeal a tax lien or levy. Time is of the essence, though. If you are dealing with any tax dispute, get in touch with our firm by calling 206-488-1979 to take advantage of a free 15-minute consultation.
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