When the IRS needs to collect on a past-due debt, it has two primary tools in its kit, the lien, and the levy. Both are useful, but each serves a different purpose and has other consequences for the taxpayer. Let’s take a look at each.
Fundamentally, a tax lien is the IRS telling the world that the taxpayer owes a debt, and they are claiming a right to the taxpayer’s property. This is not that different from other rights asserted against the property. For instance, when a person goes to sell a house, the mortgage company is paid first, and then anything left over goes to the seller. If there is a tax lien, then the mortgage company gets paid, and then the IRS gets paid. If there is anything left over, the seller receives the remainder. The big difference is that a tax lien applies to all the taxpayer’s property, not just the house.
Does this mean that the IRS owns all of your property? No, they only have a right to get paid when you sell a piece of property. This is true whether it is a house, car, or family heirloom.
A tax lien is automatic whenever there is an outstanding debt owed to the IRS. While the IRS regularly sends out notices stating there is now a lien on the property, it is not required. So it can be easy to miss that the IRS has a lien on your property, but if you owe the IRS money, it is a good bet that there is a lien on your property.
There are multiple ways to deal with a lien. But the most basic way is to pay off the debt. Once the debt is gone, then the lien will be lifted.
Unlike a lien, a levy is not automatic, and there is a good reason for this. Where a lien is just a claim against future proceeds arising from the sale of the property, a levy is when the government tries to take property from the taxpayer to settle a debt. The most common version of this is a levy on a bank account. When the IRS levies an account, any money sitting in the account goes to the government. This can be done on a personal or business account and obviously can have severe consequences for the taxpayer.
This is a severe action, and the IRS will send out multiple notices before it levies your property. The first step is the notice that you owe tax. Then there is an intent to levy. If you have received this notice, you need to act immediately. At this time, you can request a hearing where you can either argue that the debt is not accurate, or you can arrange a payment plan to take care of it. If you ignore the intent to levy, then the IRS will proceed with the levy. You may very well wake up one day with no money in your account, cars in the driveway, or even a house to live in.
What Can You Do?
Under both collection actions, liens and levies, you should take action as soon as you receive a notice. There are ways to handle both and ways to work with the IRS to resolve the issue. Having an experienced attorney can make a huge difference in this scenario. However, the single worst thing you can do is ignore it and hope the IRS goes away.
If you have received a notice, contact us today to discuss your options.