IRS Levies and Liens
IRS levies and liens are among the agency’s collection tools – used when an individual’s, couple’s or entity’s tax problems reach a critical point. Once a tax lien is placed on a taxpayer’s assets, the government has made its intentions clear – to liquidate the asset if necessary for debt resolution purposes.
If an IRS tax lien has been placed on your property, or if the levying process has already begun, expert IRS representation is highly recommended. An experienced tax professional and enrolled agent can represent your interests during communications with the IRS and help resolve any tax problems during negotiation.
The Difference Between an IRS Tax Lien and Levy
Tax liens and levies are part of the same process – two distinct steps in the IRS’s attempt to collect on an outstanding tax debt, federal or state. The two are frequently confused for each other, so here’s a quick summary:
- Tax liens – The IRS places a tax lien against a taxpayer’s assets typically after several attempts to collect an outstanding tax debt. This lien indicates to the taxpayer that their assets have been marked as collateral for the debt they owe. Initially, a tax lien is a statutory – or secret – lien that isn’t made public. However, the IRS can make a tax lien public by submitting a Notice of Federal Tax Lien, essentially putting the lien on the record.
Once a Notice of Federal Tax Lien is recorded, the taxpayer has 30 days to appeal the decision, otherwise it will be recorded by the courts. To appeal a public tax lien, taxpayers must file Form 12253 (Collection Due Process Appeal). A Notice of Federal Tax Lien also takes precedence over a taxpayer’s right to property, as the IRS may claim the proceeds from future transactions. For example, you may not sell a piece of real property without triggering the IRS tax lien. - Tax levy – Once an IRS tax lien is recorded and active, the agency may execute debt collection efforts through a tax levy. During a tax levy, the IRS will seize assets with a lien and sell them to pay off tax debts.
A tax lien and levy may be placed on a bank account as well, leading to wage garnishment and a potential hold on banking activity. When the IRS decides to levy a taxpayer’s assets, it will typically alert that taxpayer in advance, during which an appeal may be made. This is done through a Final Notice of Intent to Levy. Once this notice is sent out, the IRS is not permitted to begin levying assets for at least 30 days, with some exceptions. For instance, the agency may levy a tax refund during this 30-day window and may levy assets sooner if there is reason to believe the taxpayer will sell them to avoid resolving their tax debts.
Once the levy’s process is started, relevant assets may be frozen for weeks. Once the taxpayer reaches resolution with the IRS regarding any outstanding tax debts, the levy may be halted.
What Can the IRS Place a Lien Against, and Which Assets are Exempt?
The IRS has the power to levy only certain types of property when attempting to resolve an outstanding tax debt. In the vast majority of cases, the agency will place a lien on one of the following:
- Real property – residential and commercial
- Bank accounts – checking or savings
- Retirement and investment accounts
- Wages and paychecks
Levying or garnishing the above frequently applies enough pressure to expedite negotiation. However, the IRS is not permitted to levy the following, according to the Internal Revenue Code:
- Personal belongings, furniture, food and fuel totaling up to $6,250 in overall value
- Tools or books required a profession or business operation, totaling up to $3,125 in value
- Certain livestock and poultry
- School uniforms and books
- The taxpayer’s primary residence
- Unemployment, worker’s compensation and support for minor children
- Some pension, annuity, disability and public assistance payments
Facing a Tax Lien or Levy? A Tax Problems Expert Can Help Resolve Your Tax Issues
An IRS tax lien may cost you valuable assets, disrupt your business or financial plans, adversely affect your credit and absorb a lot of your time. Not to mention the stress.
If you’ve recently received notice that the IRS has placed a lien on your property, don’t hesitate to contact a reputable tax professional. The sooner expert representation is brought in, the easier it will be to reach a favorable resolution with the agency.
Some experienced tax professionals are also enrolled agents, which means they are qualified to provide expert representation before the IRS. By partnering with an enrolled agent, you’ll have the best possible negotiation power – which can be used to resolve a tax lien or levy and possibly reduce the tax debt you owe.
