Tax Liens vs. Tax Levies
Although these are related concepts, they are not the same thing. An IRS tax lien is an instrument that is filed by the IRS to create a security interest in your property for purposes of collecting sums owed to the IRS. A tax lien also gives notice to third parties of the existence of the claimed interest. Think of it as a second (or third) mortgage you did not consent to. Generally, a tax lien requires some other legal action in order to actually seize your property and liquidate it to satisfy tax debts.
A levy, on the other hand, is an actual seizure of your property to satisfy a tax debt. A levy actually takes your property to satisfy the tax debt. The IRS may seize and sell any type of real or personal property that you own or have an interest in, such as:
- wages;
- bank accounts;
- automobiles;
- boats; and
- houses, including your primary residence
IRS Tax Lien Process
A federal tax lien is the government’s legal claim against your property when you neglect or fail to pay a tax debt. The lien protects the government’s interest in all your property, including real estate, personal property and financial assets. A federal tax lien exists after the IRS:
In general, there are certain procedural requirements that the IRS must meet before filing a lien against your property. The IRS must:
- Assesses and determine your tax liability.
- Send you a a Notice and Demand for Payment of the tax liability that has been determined.
- You must fail or refuse to pay the assessed tax.
- The IRS files the Notice of Federal Tax Lien in the appropriate venue (usually the county recorder’s office), to alert creditors that the IRS is claiming a legal right in your property.
Call us today at 513-229-2900 to learn more about the IRS Tax Lien Process.
How a Lien Affects You
A lien attaches to all of your assets (such as property, securities, vehicles) and to future assets acquired during the duration of the lien. The existence of a tax lien against your property is very likely to limit your ability to get credit. It will certainly impair your ability to refinance any real estate that is affected by the lien.
The lien also attaches to all business property and to all rights to business property, including accounts receivable.
If you file for bankruptcy, your tax debt, lien, and Notice of Federal Tax Lien may continue in force after the bankruptcy, though there are often options for removing these liens through the bankruptcy process.
Options to Get Rid of Tax Liens
There are a number of ways that Tax Liens can be dealt with and removed.
If you agree with the amount of tax the IRS says you owe, and you have the money, you can always pay the tax debt in full and release the lien, but that is usually not a practical solution. A more serious solution is to enter into an installment payment arrangement with or an offer in compromise. Even if such arrangements are entered into, though, the IRS may choose not to release the lien or may release the lien under certain circumstances.
If you are attempting to sell property that is subject to a lien, the IRS may discharge the Lien which allows property to be sold free and clear of the lien. This is probably going to involve a substantial payment from the closing of the sale.
If you are attempting to refinance property in order to free up money to pay taxes, the IRS may subordinate the lien to the rights of the bank or mortgage company. A discharge does not remove the lien, but allows other creditors to move ahead of the IRS, which may make it easier to get a loan, mortgage, or refinance.
Under certain circumstances, the IRS may withdraw the Notice of Federal Tax Lien from the public record. This procedure, however, does not remove the lien itself or the IRS’s claim to a lien, just the public notice of its existence and the IRS’s claim to a priority over other creditors.
Call us today at 513-229-2900 to learn more about your Options to Get Rid of Tax Liens.
IRS Tax Levy Process
In general, there are certain procedural requirements that the IRS must meet before levying on your property. The IRS must:
- Asses the tax and send you a Notice and Demand for Payment. The assessment may be s a result of an audit; the result of the IRS filing a Substitute Tax Return for you; or simply an assessment relating to a tax return you filed but the tax for which you did not pay.
- You must fail or refuse to pay the assessed tax.
- The IRS must send you a Final Notice of Intent to Levy at least 30 days before the levy. This notice can be served in person, by residence service at your home; or by mail at your last known address.
Once the 30 day period has passed, the IRS can move forward and liquidate your assets to satisfy tax debt without further notice to you. However, if the IRS levies against your bank account, your bank must hold funds you have on deposit, up to the amount you owe, for 21 days. After 21 days, the bank must send the money plus interest, if it applies, to the IRS.
Call us today at 513-229-2900 to learn more about the IRS Tax Levy Process.
Right to a Hearing on IRS Tax Levy
You have the right to a hearing before the tax levy takes effect. The request for the hearing must be filed within 30 days of the date on the Final Notice of Intent to Levy. Most people fail to avail themselves of this procedural hearing at which certain defenses to the levy may be asserted. Defenses include proving:
- that you paid all taxes owed prior to the issuance of the levy notice;
- that you were in bankruptcy and protected by the automatic stay when the levy notice was issued;
- the statute of limitations for the collection of the debt has run; or
- that you are an innocent spouse and should not owe the tax.
In many cases, by timely filing the request for hearing and requesting a Collection Due Process Hearing, we can stop the levy and give us time to discuss and resolve your case with the hearing officer. We may even be able to attain an offer in compromise.
As part of the resolution process, we may also discuss your repayment and settlement options with the IRS as part of the response to the Notice of Intent to Levy.
If the hearing officer ultimately determines that your defenses are without merit and issues a decision, then you will have 30 days after this determination in which to bring a lawsuit in the Federal Court to contest the determination.
Call us today at 513-229-2900.
Remedies in the Case of a Mistake
If the IRS made a mistake by levying your bank account and you incurred bank charges because of the erroneous levy, you may be entitled to a reimbursement of these fees from the IRS in addition to a return of any improperly seized funds in the bank account. A request for the return of the bank fees must be filed within one year after your bank charged you the fee.
How We Can Help you
If the IRS has filed a federal tax lien or a tax levy against your assets, we will analyze your situation and find the best course of action for you to avoid the levy or resolve the claim. By engaging our services we can secure a temporary freeze on further collection activity, providing us with sufficient time to analyze your situation and determine the best course of action.
The important thing to remember is that even if you are subject to a tax lien or tax levy from the IRS or State, the situation is not hopeless. We have many different options available to us that will allow us to resolve disputes and deficiencies in taxes.
Call us for a free initial consultation.
Serving Southwest Ohio clients in Cincinnati, Mason, Lebanon, West Chester, Montgomery, Hamilton, Middletown, Batavia, Wilmington and surrounding areas.
Warren County • Butler County • Hamilton County • Clermont County • Clinton County
