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IRS Tax Liens and Levies
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IRS Tax Liens and Levies – A Helpful Guide
Dealing with the IRS can be scary and confusing. This article aims to explain in simple terms what tax liens and levies are, how they work, and what your options are if you get hit with one.
What is a Tax Lien?
A tax lien is a legal claim the IRS puts on your property as security for unpaid taxes. It attaches to all your property, even property you acquire after the lien arises. A tax lien arises automatically if you don’t pay after the IRS sends a demand letter. It’s sometimes called a “secret lien” because there’s no public record at first.
The lien allows the IRS to seize and sell your property to pay your tax debt. It continues to attach to property even if you transfer it to someone else – like in a divorce. So if your ex-spouse gets property with a lien, the IRS can still take it. The one exception is if you sell your property to a buyer who pays fair market value – then the IRS can’t seize it from them.
When people say “tax lien” they usually mean a Notice of Federal Tax Lien. This is a document the IRS files publicly to notify everyone you owe taxes. It lists the amount owed, type of tax, years, and date assessed. The amount stays the same even if you make payments or penalties increase. A tax lien hurts your credit badly and makes it hard to sell real estate.
What is a Tax Levy?
A tax levy is different – it’s when the IRS legally seizes your property to pay your taxes. They don’t need a court order or judgment first. Common tax levies include:
- Bank levy – IRS takes money from your bank account
- Wage levy – IRS garnishes your wages and has your employer send them your paycheck
- Accounts receivable levy – IRS takes payments owed to your business
With a bank levy, the bank has to hold the money for 21 days before sending it to the IRS. But with a wage levy, your employer has to start sending your paycheck to the IRS immediately. So wage levies are really tough to deal with.
How Do I Get Rid of a Tax Lien or Levy?
The best way is to pay off your tax debt, which removes the lien or levy. The IRS may let you set up a payment plan or make an Offer in Compromise. You can also try to prove financial hardship and ask the IRS to release the levy – but this is hard to do.
You may be able to get the lien removed by posting a bond equal to the amount owed, or by paying your balance down to a certain amount. In very limited cases, you can challenge the underlying liability in Tax Court.
Bottom line – if you get a tax lien/levy notice, don’t ignore it! Call a tax attorney right away to understand your options and start negotiating with the IRS. The sooner you take action, the better.
I know dealing with this stuff is scary. But take a deep breath and know there are always options. Call me if you need help or just want to talk through your situation – I’m happy to discuss your case for free.
References
Here are some useful resources I mentioned in the article: