Tax Controversy 101 – Tax Liens and Levies

When a taxpayer has an outstanding tax debt, the Internal Revenue Service (“IRS” or the “Service”) uses methods to compel a taxpayer to pay the outstanding tax debt or take possession of a taxpayer’s assets to satisfy said outstanding tax debt.

Below are two of the most common methods used by the Service to collect an outstanding tax debt:

Lien

A lien secures the Services’ interest in your property after several attempts to collect an outstanding tax debt. It is a public record filed with the office of the clerk of court where a taxpayer’s property is situated and alerts creditors that the federal government has rights to a taxpayer’s property and can attach to property such as real estate, personal property, and other financial assets. The Service sends a notice of its intent to lien at least thirty days before the lien is filed. A lien is essentially collateral to secure payment of an outstanding tax debt owed to the government and can affect a taxpayer’s credit, and in some cases, interrupt their business operations.

Levy

While a lien is a legal claim against a taxpayer’s property, a levy is when a creditor, in this case, the Service, seizes a taxpayer’s property to satisfy an outstanding tax debt. Similar to a lien, prior to seizing a taxpayer’s assets the Service sends a notice of its intent to levy at least thirty days before the levy takes place. Notwithstanding the foregoing, there are certain assets that cannot be seized by the Service to satisfy an outstanding tax debt such as, unemployment benefits and certain disability payments, workers compensation benefits, however, it is permitted to levy on retirement accounts, wages, social security benefits and personal property (i.e., cars, boats, real estate).

How to avoid a lien or levy?

The best way to avoid a lien or levy is to pay your taxes in full when due. If you are unable to make full payment, there are payment plans available to satisfy a tax debt over time. Needless to say, it is important to never ignore a notice from the IRS concerning an outstanding tax debt.

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