TAX LIENS AND LEVIES: WHAT’S THE DIFFERENCE?

Published by William T. Fricke at March 15, 2018

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If you don’t pay your federal tax obligations and don’t make arrangements to pay them in the future, you may be subject to a number of punitive actions. In practice, the Internal Revenue Service has extraordinary power to compel payment by various means.

The two main approaches available are levy and lien.

What is a Federal Tax Levy?

A levy empowers the IRS to seize your personal or real property for use in paying off a specific debt. The IRS is most likely to levy bank accounts before other types of property.  The government will take possession of the property in question and, generally, liquidate it at auction in order to apply its proceeds to the debt. Another type of levy is the garnishment of your employment wages.

When property is levied, the taxpayer loses possession and right to it immediately. The full value of the property is not necessarily applied to the tax debt: There may be additional fees and fines arising from the levy action and other administrative matters.

Certain types of property can be exempted from levy action according to the Internal Revenue Code. In many cases, real property is subject to a lien rather than a levy. This allows the taxpayer to maintain provisional control of the property in question.

What is a Federal Tax Lien?

In a lien¸ the federal government asserts its interest in a piece of property.

In practice, a federal lien is often very similar to a bank lien: The government expresses its intent to take possession of a piece of property if certain conditions are not met. The lien is generally used to ensure compliance with tax repayment under particular terms.  The IRS will almost always file liens if the tax liability exceeds $50,000.

An IRS lien will be discharged within 30 days after the specific tax obligation is paid in full if the taxpayer has also ensured they continue to address all subsequent and current tax burdens in accordance with IRS procedure.

A federal tax lien does not mean no other entity can place a lien on a property. For example, liens can be placed by state or municipal governments, by lenders, and so on.

In cases when there are multiple claimants with an interest in a specific piece of property, the IRS may pursue subordination. This maintains the lien but allows other creditors to pursue their claims first. This can make it easier to secure a mortgage loan or other financing, for example.

What Can You Do if Faced with a Federal Lien or Levy?

The Internal Revenue Code is written to facilitate IRS procedure and gives it extraordinary leverage when dealing with taxpayers. Most will find that challenging the issue in court is difficult or impossible. However, there are options.

Both a federal levy and a federal lien must be preceded by written notice of intent to take that action. When you receive notice, you have an opportunity to pursue a hearing. The notice must be issued at least 30 days in advance of IRS activity.

A hearing can produce more favorable repayment terms, including long-term plans. It may even find you are not liable for specific debts.

For expert help, contact Fricke & Associates, LLC

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