Federal Lien and Levy

July 4, 2012 by  Filed under: Taxes 

If you have a tax debt, you might receive a Federal Lien Notice from the IRS. Because of the complexity of the IRS language people often believe that federal tax lien means that the IRS is going to take away their property for the back taxes. This is not correct.

A Federal Tax Lien is a claim that the IRS makes against your property. According to the IRS, the purpose of this claim is to protect the Government’s rights to collect your tax debt from sales of your property, should they ever take place. A Federal Tax Lien does not take your property from you, nor does it force you to sell it. However, if you ever decide to sell any of your assets, the buyer of your property would have to send money to the IRS to satisfy your tax debt, which means you might only receive some of the money, or nothing at all from the sale.

Another problem with a lien is that it affects your credit history and impairs your ability to get a loan. Even filing for bankruptcy might not remove a tax lien. A Federal Tax Lien is usually removed after the balance of your tax liability is paid in full. However, it can take some time for credit agencies to recognize that a lien has been removed.

An IRS Levy is a completely different story. While a lien only secures the debt, a levy actually takes your property to satisfy the debt. The IRS Levy is a broad term, which includes seizure of assets that are in your possession, such as your property, and assets that are kept for you by a third party, such as money on your bank accounts, your wages, Accounts Receivable, social security benefits, etc.

A Bank levy is usually applied only to the amount of money that a bank kept on your behalf on the day when the levy was received. A bank has to withdraw the entire balance indicated on the Notice of Levy, if available, and send it to the IRS. If you make a deposit into your account the day after the Levy Notice, this money cannot be affected. To give you an opportunity to negotiate a levy release, in case of a mistake, the IRS requires that a bank holds your money for 21 days before sending it.

Wage garnishments, levies on Social Security and Accounts Receivable levies are usually what the IRS calls “continuous” levies. They will not be limited to the day when they are received.

In some cases a levy can be released. In order to do that, you need to either have your debt paid in full, or set up an agreement with the IRS, such as a Payment Plan (Installment Agreement), Partial Payment Plan, Currently Uncollectible Status, etc. However, the IRS sometimes agrees to release the levy based on other circumstances, such as financial hardship of the taxpayer.

It is important to understand the difference between a Federal Lien and a Levy and to know your rights if you receive any of these documents. The IRS is required to notify you at least 30 days before either a Lien or a Levy are issued. If you decide to file an appeal, you have to complete and send to the IRS Form 12153, Request for a Collection Due Process or Equivalent Hearing, though filing an appeal against a lien is unlikely to be successful unless you don’t owe what the IRS claims. This form has to be received within thirty days from the date on the IRS Notice.

This guest post was provided by Ian Jackson, a tax professional who writes for one of the premier tax resolution companies. Find out more about Federal Liens.

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