Q. What is the difference between a tax lien and a tax levy? How do I explain lien vs levy to a client?
A. Taxpayers often get confused when talking about a tax lien vs levy. They are both used as part of the collection process when taxpayers owe money to the IRS or other tax agencies. A federal tax lien is a claim to a taxpayers current or future property, the IRS hasn’t actually taken anything from the taxpayer. Whereas a levy is when the IRS takes property, such as garnishing wages, bank balances, or seizure of other assets to sell in order to satisfy the debt. Both liens and levy’s can have a negative impact on taxpayers.
With a lien, the IRS files a Notice of federal tax lien to put the public on notice that this taxpayer owes money to the IRS. All tax owed is considered to have a federal tax lien , but once taxpayers owe certain amounts the IRS will file a Notice of Federal Tax Lien to let the public know. This alerts creditors that the taxpayer owes the government money and that the IRS is asserting a secured claim against your assets. When you try to sell your property the IRS debt will need to be paid. This will affect the taxpayers credit report, and shouldn’t be taken lightly.
A tax levy, on the other hand, is not a public notice and shouldn’t affect the credit report. Though, a tax levy can be even more damaging to taxpayers, as the IRS can dip into the taxpayers bank accounts, or garnish their paychecks to satisfy the tax debt. This action can cause taxpayers extreme financial damage and requires immediate response to help stop the IRS from helping itself.
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