IRS liabilities can cause immense stress, so it's important to understand the terminology and how to navigate the problems.
Two common terms you may encounter are tax liens and tax levies. This article explains the key
differences between the two and provides insight on how to address them.
IRS Tax Liens vs. IRS Tax Levies: Understanding the
Difference
IRS Tax Lien:
Definition: Commonly referred to as a Federal Tax Lien, this enforcement tool is a legal claim
issued by the government to encumber property, typically real estate and other assets, due to unpaid taxes.
Key Characteristics:
Federal Tax Liens are public information and they alert creditors that the government has a
claim against your property. Federal Tax Liens are filed to protect the government's interest and
ensure they are included when property is sold. A Federal Tax Lien can negatively impact your
creditworthiness and make obtaining loans and credit difficult. If a Federal Tax Lien is not
addressed as priority it can lead to additional collection measures including seizure.
Dealing with an IRS Tax Lien:
Pay in Full: The most effective way to resolve a Federal Tax Lien is by paying off the liability
included in the lien. Once paid, the Federal Tax Lien will be systemically released and property
will no longer be encumbered/restricted
.
Negotiate a Payment Plan (Installment Agreement): Negotiating an Installment Agreement requires you, or a
representative on your behalf, to work with the IRS to establish a structured schedule for paying
off your debt over time. Absent specific circumstances, a Federal Tax Lien will remain in place
until the periods of liability included are paid via the monthly installment payments.
Request a Lien Withdrawal: If certain very specific circumstances exist, you can request
withdrawal of the Federal Tax Lien. This will improve your creditworthiness and will no longer be
a matter of public record. Meeting specific criteria and complying with terms of a formal
Installment Agreement is usually required.
Subordination of the Lien: Subordination of a Federal Tax Lien allows other creditors to take
priority ahead of the IRS. Like a withdrawal, the IRS has strict requirements to qualify for a
Subordination. These requirements generally include compliance with IRS return filings and
formal resolution of the debt encumbered by the Federal Tax Lien.
Offer in Compromise (OIC): The debt encumbered by Federal Tax Lien can be “settled” for a
reduced amount through an OIC. The formula-based qualifying process for an OIC is stringent
and very few taxpayers qualify for this option. If an OIC is ultimately approved, the Federal Tax
Lien will remain in place until the agreed upon OIC amount is paid, at which time the Federal
Tax Lien will be systemically released. It is also important that all subsequent IRS obligations
are filed and paid timely.
IRS Tax Levy:
Definition: An IRS Notice of Levy is the involuntary seizure of your property to satisfy a tax debt. Notices of Levy are typically issued to bank accounts, wages, accounts receivable or other assets.
Key Characteristics:
Unlike a Federal Tax Lien, a Notice of Levy involves the actual seizure of assets with the IRS
applying the proceeds toward a tax debt. Notices of Levy can occur unexpectedly and typically
have an immediate and severe impact on your financial stability.
How to Deal with an IRS Notice of Levy:
Contact the IRS immediately: If your bank, employer or customer has received a Notice of Levy
it's crucial to act quickly. Reach out to the IRS right away to prevent further enforced collection
measures and negotiate a resolution. In some situations Notices of Levy can be released;
however, proactive and persistent communication with the IRS will be required.
Negotiate a payment plan (Installment Agreement):
In the same manner mentioned for resolving a Federal Tax Lien, a payment plan can be established with the IRS to address the tax debt that lead to issuance of the Notice of Levy. Memorializing an IRS Installment Agreement will prevent the IRS from issuing additional Notice of Levy provided the terms of the agreement are maintained.
Offer in Compromise (OIC): Submitting an IRS OIC will not result in immediate release of a
Notice of Levy. It is prudent to work through the process of addressing the Notice of Levy and
then determining whether an OIC is an option for you. The IRS is not permitted to issue
additional Notices of Levy while considering an OIC but, again, OIC submission will not impact
any Notices of Levy issued prior to requesting an OIC.
Prove hardship: If a Notice of Levy is causing extreme financial distress, evidence must be
provided for a release to be considered. This generally includes validating for the IRS that you
are unable to satisfy mandatory expenses such as rent, food, transportation to work, etc.
Seek professional help: Dealing with IRS Notices of Levy is complicated. Assistance from a
qualified tax resolution specialist who can advocate on your behalf with the IRS and determine
an achievable resolution for your situation will allow for peace of mind to be returned.
A Tax Pros Full Guide to IRS Lien and IRS Levy:
Important Tips for Dealing with Tax Liens and Tax Levies
1. Open Communication: Resolving IRS Federal Tax Liens and Notices of Levy requires open
communication. Penalties and interest accrue daily and ignoring the problem will only make it
worse.
2. Seek Professional Assistance: Dealing with the collection division of the IRS can be difficult
and confusing. Getting help from a tax resolution specialist greatly improves your chances of
securing a favorable resolution.
3. Negotiate Wisely: When communicating with the IRS regarding a Federal Tax Lien or Notice of
Levy, be mindful of the resolution terms you are considering. Oftentimes, taxpayers feel
pressure to accept any proposed resolution for the sake of addressing an urgent situation. This
can result in future issues if the terms of the established resolution are not sustainable. It is
always best to consult with a qualified tax professional who can help you navigate the IRS
maze.
4. Preventative Measures: To avoid tax issues in the future, focus on proper tax planning and
compliance. Make sure to file your returns on time and pay your taxes.
In conclusion, understanding the differences between tax liens and tax levies is crucial when
dealing with IRS liability. Addressing IRS liabilities is complex, so it's important to act promptly
and seek professional assistance. With the right approach and expert guidance, you can
voluntarily resolve your tax liability and regain financial stability. Don't let the IRS overwhelm
you; take proactive steps to address them today.
In conclusion, although dealing with the IRS can be stressful, it is important to understand what you're up against. IRS liens and levies can strike fear into hearts of anyone and ignoring them will not make them go away. It is vital to deal with the problem as soon as possible. Now that you've read A Tax Pros Full Guide to IRS Lien and IRS Levy, you've taken the first step to solving your IRS problem.
Working with our team:
If you are dealing with an IRS lien or levy, our team is here for you. We have dealt with thousands of liens and levies over the decades. The experts on our team have helped countless individuals and businesses frictionlessly navigate IRS tax debts and get back on track. Contact us for a free consultation today!
IRS Codes Referenced;
● Internal Revenue Code. " Title 26, Section 6321 - Lien for Taxes." 2022.
● Internal Revenue Code. " Title 26, Section 6322 - Period of Lien." 2022.
● Internal Revenue Code. " Title 26, Section 6323 - Validity and Priority Against Certain
Persons Without Notice." 2022.
● Internal Revenue Code. "Title 26, Section 6331 - Levy and Distraint." 2022.
● Internal Revenue Code."Title 26, Section 6332 - Surrender of Property Subject to Levy."
2022.
● Internal Revenue Code. "Title 26, Section 6333 - Production of Books."2022.
● Internal Revenue Code. "Title 26, Section 6334 - Property Exempt from Levy." 2022.