Taxpayers are understandably frequently confused between a federal tax lien and a federal tax levy. A lien is simply the IRS’s legal claim against all of your current and future property. On the other hand, the IRS levies your property when it actually seizes the taxpayer’s property or rights to property pursuant to lawful process. A lien is created by law when a taxpayer doesn’t pay his, hers or it’s taxes when they are due.
The IRS files a “Notice of Tax Lien” to give notice to the taxpayer’s other creditors of its claims’ priority over those held by other creditors. The Notice of Tax Lien is filed with state and local authorities such as the Secretary of State and the local recorder of deeds. The IRS simultaneously sends the taxpayer a “Notice of Federal Tax Lien Filing.” The filing of a Notice of Tax Lien can, and likely will, affect that taxpayer’s credit rating and may impact his or her employment, tenancy, and ability to borrow money.
Taxpayers can appeal the filing of a Notice of Tax Lien. Taxpayers can request a Collection Due Process Hearing with the IRS’s Office of Appeals, which is independent from the agency that filed the Notice of Tax Lien. If the taxpayer disagrees with the Office of Appeals’s decision, he or she can petition the Tax Court. In addition to filing a request for a Collection Due Process Hearing, the taxpayer can also challenge the Notice of Federal Tax Lien under the Collection Appeals Program.
Under certain circumstances, the IRS will release the taxpayer’s Federal tax lien. If the IRS releases the taxpayer’s Federal Tax Lien, that means that it has cleared the taxpayer’s lien and the Notice of Federal Tax Lien. The IRS will release the taxpayer’s lien and Notice of Federal Tax Lien if the taxpayer has paid his, her, or it’s debt, the taxpayer’s debt is guaranteed by a bond, the taxpayer has met the payment terms of an Offer in Compromise, or the period for collection of the taxpayer’s tax debt has ended.
In some cases, the IRS can withdraw, rather than release, a Notice of Federal Tax Lien. A tax lien withdrawal removes the Notice of Federal Tax Lien from the public record. The IRS will withdraw a Notice of Federal Tax Lien when the taxpayer enters into an installment agreement to satisfy the tax lien, the withdrawal will help the taxpayer pay the taxes more quickly, the IRS failed to follow its procedures properly, it was filed during the bankruptcy automatic stay period, or if it is in the best interest of both the taxpayer and the government.
The IRS can’t seize, or levy, a taxpayer’s property if he, she, or it has a current or pending Installment Agreement, Offer in Compromise, or if the IRS agrees that the taxpayer wasn’t able to pay because of economic hardship. Under normal circumstances, the IRS will only levy a taxpayer’s property if the IRS assessed the tax and sent the taxpayer a bill, the taxpayer neglected or refused to pay the tax, and it has sent the taxpayer a Final Notice of Intent to Levy and Notice of Your Right to a Hearing at least 30 days before the seizure.
Taxpayers can appeal a proposed seizure or levy. The taxpayer can request a Collection Due Process hearing within 30 days of his, her, or its receipt of a Notice of Intent to Levy and Notice of Your Right to a Hearing. The IRS will release a levy if the taxpayer pays the amount due, the period for collection ended prior to the levy being issued, it will help the taxpayer pay the taxes, the taxpayer enters into an Installment Agreement, the levy creates an economic hardship, or the value of the property is more than the amount owed and releasing the levy won’t hinder the IRS’s ability to collect the amount owed.
The IRS will also release a levy if it was issued against property exempt from seizure, was issued prematurely, it was issued prior to the IRS sending the taxpayer the required notice, the taxpayer was in bankruptcy and the automatic stay was in effect, when the expenses of seizing and selling the property are greater than the property’s fair market value, while an Installment Agreement request, Innocent Spouse Relief request, or an Offer in Compromise are being considered or have been accepted, and during the pendency of certain Office of Appeals and Tax Court proceedings.
Under certain circumstances, the IRS will also return a taxpayer’s seized, or levied, property. The conditions include if the seizure was premature, the seizure was made in violation of the law, returning the seized property will help the IRS collect the debt, the taxpayer enters into an Installment Agreement, the IRS didn’t follow its own procedures, or doing so is in the best interest of both the taxpayer and the government.
If you would like more information regarding federal tax liens and levies, you can review IRS Publication 594, “The IRS Collection Process,” or call me at 917-817-9001 or e-mail me at firstname.lastname@example.org. This blog posting is not designed to provide you or anyone else with legal advice. If you would like legal advice, please contact me or your attorney.