Liens and Levies are two different legal actions that the Internal Revenue Service (IRS) can take to collect outstanding tax debts from taxpayers. Understanding the difference between these two actions can help you protect your financial assets and avoid penalties.
Liens
A lien is a legal claim made by the IRS against a taxpayer's property or assets. This means that if you owe back taxes, the IRS can place a lien on your property, such as your house, car, or bank accounts, to secure its claim for the debt. Liens do not immediately take your property; instead, they act as a warning to other creditors that the IRS has a claim on your assets.
How It Affects You
Having a lien on your property or assets can significantly impact your financial situation and future financial goals. Here are some ways that a lien can affect you:
Credit Score: A lien can negatively impact your credit score and make it difficult for you to obtain loans or credit in the future.
Selling Property: If you have a lien on your property, you may be unable to sell it until the debt is paid off or the lien is released.
Refinancing: A lien can also make it difficult to refinance your property or obtain a second mortgage.
Public Record: Liens are public records, which means that anyone can see that you have a lien against your property. This can have negative consequences for your reputation.
Interest and Penalties: The longer you have a lien on your property, the more interest and penalties you may incur, making it even harder to pay off the debt.
In conclusion, a lien can have a significant impact on your financial situation and future financial goals. Therefore, it is important to take action to resolve the debt and have the lien removed as soon as possible. Again, working with a tax professional or financial advisor can help you understand your options and find the best solution.
Getting rid of a lien
If you have a lien on your property or assets, it is important to take action to have it removed as soon as possible. Here are some steps you can take to get rid of a lien:
Pay off the debt: The most straightforward way to remove a lien is to pay off the debt in full. Once the debt is paid, the lien will be released automatically.
Negotiate a payment plan: If you are unable to pay the debt in full, you can negotiate a payment plan with the IRS to pay off the debt over time. Once you make all of the payments, the lien will be released.
Apply for hardship relief: If you are experiencing financial hardship, you may be eligible for hardship relief from the IRS. This relief may include having the lien removed or reducing the amount of the debt.
Challenge the lien: If you believe that the lien was filed in error or that there was a mistake in the calculation of your debt, you can challenge the lien by providing evidence to the IRS.
File for bankruptcy: Filing for bankruptcy can discharge your debt, which means that the lien will be removed. However, this is a drastic step and should only be considered as a last resort.
Levies
A levy is a legal seizure of a taxpayer's property or assets by the IRS to satisfy a tax debt. Levies are different from liens because they allow the IRS to take actual possession of your assets, such as wages, bank accounts, or rental income, to pay off your debt. Levies can significantly impact a taxpayer's financial situation and lead to a loss of assets and a decrease in income.
How It Affects You
Having a levy placed on your property or assets can significantly impact your financial situation and future financial goals. Here are some ways that a levy can affect you:
Wages and Bank Accounts: The IRS can garnish your wages and seize your bank accounts to pay off the debt. This can make it difficult to pay your bills and meet your financial obligations.
Credit Score: A levy can negatively impact your credit score and make it difficult for you to obtain loans or credit in the future.
Financial Hardship: A levy can cause financial hardship and make it difficult to pay your bills and meet your financial obligations.
Public Record: Levies are public records, which means that anyone can see that your property or assets have been seized. This can have negative consequences for your reputation.
Interest and Penalties: The longer the levy remains in place, the more interest and penalties you may incur, making it even harder to pay off the debt.
In conclusion, a levy can have a significant impact on your financial situation and future financial goals. Therefore, it is important to take action to resolve the debt and have the levy removed as soon as possible. But, again, working with a tax professional or financial advisor can help you understand your options and find the best solution.
Getting rid of a Levy
If you have a levy on your property or assets, it is important to take action to remove it as soon as possible. Here are some steps you can take to get rid of a levy:
Pay off the debt: The most straightforward way to remove a levy is to pay off the debt in full. Once the debt is paid, the levy will be released automatically.
Negotiate a payment plan: If you are unable to pay the debt in full, you can negotiate a payment plan with the IRS to pay off the debt over time. Once you make all of the payments, the levy will be released.
Apply for hardship relief: If you are experiencing financial hardship, you may be eligible for hardship relief from the IRS. This relief may include having the levy removed or reducing the amount of the debt.
Challenge the levy: If you believe that the levy was filed in error or that there was a mistake in the calculation of your debt, you can challenge the levy by providing evidence to the IRS.
File for bankruptcy: Filing for bankruptcy can discharge your debt, which means that the levy will be removed. However, this is a drastic step and should only be considered as a last resort.
It is important to understand that the IRS generally cannot take your primary residences or essential personal property, such as clothing and household furnishings, through a levy. However, the IRS can seize other assets, such as jewelry, investment accounts, and other valuable property.
Bottom Line
In conclusion, liens and levies are two different legal actions taken by the IRS to collect outstanding tax debts. A lien is a legal claim against your assets, while a levy is a legal seizure of your assets to pay off the debt. Understanding the difference between these two actions can help you protect your financial assets and avoid penalties.
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Jim McClaflin, EA, NTPI Fellow, CTRC