IRS Levy and Tax Liens

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An IRS Levy is a seizure of your property, normally cash, in order to satisfy a tax debt.

While IRS Liens and Levies are totally different the terms are sometimes mistakenly used interchangeably.

An IRS Lien is an IRS claim against personal or business property to secure payment of the tax debt. Liens are created 10 days after the IRS notifies you that you have a taxes owed (sometimes referred to as a ‘secret’ lien), no matter if it is filed at the Courthouse or not.

IRS Levies

Before a levy an be issued the IRS must complete the following:

  • The IRS assessed the tax and sent you a Notice and Demand for Payment (a tax bill);
  • You neglected or refused to pay the tax; and
  • The IRS sent you a Final Notice of Intent to Levy and Notice of Your Right to A Hearing (levy notice) at least 30 days before the levy. The IRS may give you this notice in person, leave it at your home or your usual place of business, or send it to your last known address by certified or registered mail, return receipt requested. Please note: if the IRS levies your state tax refund, you may receive a Notice of Levy on Your State Tax Refund, Notice of Your Right to Hearing after the levy.

The IRS could levy property that is yours, but is held by someone else (such as your wages, retirement accounts, dividends, bank accounts, licenses, rental income, accounts receivables, the cash loan value of your life insurance, or commissions). Or, the IRS could seize and sell property that you hold such as your car, boat or house.

IRS levies must be dealt with immediately. If your bank account has been frozen, you normally have 21 days to pay the taxes due or make arrangements to pay the taxes. The bank does not keep your money on their own, they are just abiding by the IRS order.

IRS Liens

An IRS tax liens can exist when you owe a federal tax debt.

The IRS must meet the following requirements before that can file a federal tax lien:

  • Puts your balance due on the books (assesses your liability);
  • Sends you a bill that explains how much you owe (Notice and Demand for Payment); and
    you
  • Neglect or refuse to fully pay the debt in time.

The IRS files a public document, the Notice of Federal Tax Lien, to alert creditors that the government has a legal right to your property.

IRS Lien Elimination

Pay your tax debt  - in full - is the best way to get rid of a federal tax lien. The IRS releases your lien within 30 days after you have paid your tax debt.

When conditions are in the best interest of both the government and the taxpayer, other options for reducing the impact of a lien exist.

Discharge of property

A "discharge" removes the lien from specific property. There are several Internal Revenue Code (IRC) provisions that determine eligibility.

Subordination

"Subordination" does not remove the lien, but allows other creditors to move ahead of the IRS, which may make it easier to get a loan or mortgage. This strategy is often used so someone could sell their house while a tax lien is still in effect.

Withdrawal

A "withdrawal" removes the public Notice of Federal Tax Lien and assures that the IRS is not competing with other creditors for your property; however, you are still liable for the amount due.

Two additional Withdrawal options resulted from the Commissioner's 2011 Fresh Start initiative.

One option may allow withdrawal of your Notice of Federal Tax Lien after the lien’s release.

General eligibility includes:

Your tax liability has been satisfied and your lien has been released; and also:

  • You are in compliance for the past three years in filing - all individual returns, business returns, and information returns;
  • You are current on your estimated tax payments and federal tax deposits, as applicable.

The other option may allow withdrawal of your Notice of Federal Tax Lien if you have entered in or converted your regular installment agreement to a Direct Debit installment agreement.

General eligibility includes:

  • You are a qualifying taxpayer (i.e. individuals, businesses with income tax liability only, and out of business entities with any type of tax debt)
  • You owe $25,000 or less (If you owe more than $25,000, you may pay down the balance to $25,000 prior to requesting withdrawal of the Notice of Federal Tax Lien)
  • Your Direct Debit Installment Agreement must full pay the amount you owe within 60 months or before the Collection Statute expires, whichever is earlier
  • You are in full compliance with other filing and payment requirements
  • You have made three consecutive direct debit payments
  • You can’t have defaulted on your current, or any previous, Direct Debit Installment agreement.

How a Lien Affects You

Assets — A lien attaches to all of your assets (such as property, securities, vehicles) and to future assets acquired during the duration of the lien.

Credit — Once the IRS files a Notice of Federal Tax Lien, it may limit your ability to get credit.

Business — The lien attaches to all business property and to all rights to business property, including accounts receivable.

Bankruptcy — If you file for bankruptcy, your tax debt, lien, and Notice of Federal Tax Lien may continue after the bankruptcy.

Avoid a Lien

You can avoid a federal tax lien by simply filing and paying all your taxes in full and on time. If you can’t file or pay on time, don’t ignore the letters or correspondence you get from the IRS.

Disclaimer: This web site is designed for general information only. Nothing in this site should be construed to be formal legal advice, or to form a lawyer/client relationship.