Tax Liens and Levies

Taxpayers are often confused about the difference between a lien and a levy. The law in these areas is very distinct, and it is important to understand the difference between the two. A lien is not a levy, it simply secures the government’s interest in your property when your tax debt is not paid. On the other hand, a levy occurs when the government forcibly takes your property, such as levying the funds in your bank account or garnishing your wages.

Tax Liens

If you don’t pay your tax debt, the IRS has the power to place a lien on all the assets that you currently own, as well as any assets you may later obtain while the lien is in effect. Depending on the amount of tax due, the IRS may file a public notice of the lien alerting your creditors of its claim on your property, which can affect your credit rating and your ability to sell or transfer your property. The lien will be released within 30 days of the tax debt being paid in full. Certain provisions are available to obtain a lien discharge, lien withdrawal, or lien subordination. However, it is not always possible to remove a lien, particularly if the government does not believe that removal will facilitate collection of the tax.

Withdrawal of Federal Tax Lien Under the Fresh Start Initiative

A lien withdrawal removes the notice of federal tax lien, even though the tax may still be due. As part of the IRS’s Fresh Start Initiative in 2011, two new withdrawal options are available. One option allows for removal if the tax is paid in full and the lien has been released, all tax returns have been filed within the last three years, and all required estimated tax payments and federal tax deposits have been paid. The other option allows for withdrawal for most taxpayers who owe $25,000 or less in tax, are entered into a direct debit installment agreement which will pay the tax debt in full within a certain time frame, have made three consecutive payments under the installment agreement, have not previously defaulted under an installment agreement, and are in full compliance with all tax filings. Withdrawal of an IRS tax lien can improve your credit and unencumber your property, allowing you greater financial freedom.

Tax Levies

The IRS has broad powers, including the ability to seize property to satisfy tax debt. Although it can seem quite daunting, taxpayers have rights and options available to limit this power. When bank accounts are levied, the bank must hold the funds for 21 days before turning the money over to the government. During this time, it is advisable to obtain the assistance of a tax attorney. It may be possible for the bank to release your funds in full or in part due to an economic hardship.

Collection Due Process Hearing

When a Notice of Federal Tax Lien is filed, and if it is 30 days before the IRS can levy your property (with the exception of future tax refunds), you generally have a right to a Collection Due Process (CDP) hearing. A request for a CDP hearing must be made in a timely manner to preserve this right. If the request is not timely made, it may be possible to obtain an equivalent hearing: however, only a timely-filed request for a CDP hearing will guarantee that your property will not be seized prior to the hearing taking place. During the hearing, you will have an opportunity to propose an alternative to a forced seizure of your property, such as an installment agreement or offer in compromise.

Contact an Experienced Tax Attorney in the Sacramento Area

If you are worried that your failure to pay tax debts has put you on the IRS’s radar, there may be a way to limit their power. We encourage you to contact a tax attorney from the NewPoint Law Group, LLP, for assistance in creating installment plans or other alternatives. To schedule a free consultation, call 800-358-0305 or contact us online today.