Knowing the difference between a levy and a lien helps CPAs, Enrolled Agents, and other tax pros guide their clients through the successful resolution of challenging IRS cases. Proper guidance based on a clear understanding of IRS levy vs lien can make the difference between financial stability and continued stress for your clients.
What is a Tax Lien?
An IRS tax levy is when the IRS actually seizes a taxpayer’s property to satisfy a tax debt. Unlike a lien, which is a claim against the property, a levy means the IRS takes possession of the assets. This can involve seizing bank accounts, garnishing wages, or taking other property like a house or a car. The IRS usually resorts to a levy only after sending multiple notices and the taxpayer has failed to respond. Levies can have an immediate financial impact and cause significant hardship if not addressed promptly.
Before the IRS can proceed with a levy, they must send a Final Notice of Intent to Levy and provide the taxpayer with an opportunity for a hearing. This notice gives taxpayers 30 days to respond, pay their debt, or make alternative arrangements. If no action is taken, the IRS can proceed with the levy.
Further Consequences of Levies and Liens
The IRS can levy a taxpayer’s paycheck and other sources of income, and these levies can be continuous. While the IRS allows the taxpayer to keep a small portion of their paycheck to cover basic living expenses, the financial burden can still be significant.
A bank levy is different in that it only applies to the funds in the taxpayer’s account at the time the notice is received by the bank. Any future deposits are not automatically levied unless the IRS issues another notice.
Despite the severe financial impact of levies, taxpayers have rights and can take steps to mitigate these actions. Seeking assistance from a tax resolution specialist can help in negotiating with the IRS, setting up payment plans, or appealing levies to find a more manageable solution.
If a taxpayer has a seriously delinquent tax debt, which is typically defined as $62,000 (adjusted yearly for inflation) or more (including penalties and interest), the IRS can take several severe actions. Beyond imposing liens or levies, the IRS can certify this debt to the State Department. This certification can lead to the denial of issuing or renewing a passport and even the revocation of an existing passport. This IRS passport hold is designed to compel taxpayers to resolve their tax debts promptly.
Liens and levies cause tremendous stress by reducing disposable income and making it harder for people to meet everyday expenses. However, taxpayers have rights and can take action to address these issues.
Taxpayers don’t have to face these challenges alone. The services of an expert tax resolution specialist can be invaluable in getting levies removed tax levies, appealing garnishments, negotiating payment plans, or successfully taking other steps to resolve tax levies. These professionals can help navigate the complexities of tax law, ensuring that taxpayers understand their rights and options for relief.
Responding to a Tax Lien or Levy
Upon receiving a lien or levy notice, immediate action is essential to mitigate potential damage. Tax professionals can guide their clients toward several possible resolutions:
- Paying the Debt in Full: This is the most straightforward resolution, eliminating the lien or levy completely.
- Installment Agreement: Setting up a payment plan allows taxpayers to pay off their debt over time, potentially preventing the levy from taking effect.
- Offer in Compromise: Negotiating with the IRS to settle the debt for less than the full amount owed can be a viable option for qualifying taxpayers.
- Currently Not Collectible Status: Demonstrating financial hardship can temporarily halt IRS collection actions.
- IRS Lien Withdrawals: If a taxpayer pays their debt in full or enters into an Installment Agreement (in some circumstances), they may request a lien withdrawal. The IRS has made this process easier, particularly for taxpayers with unpaid assessments of $25,000 or less. Setting up an Installment Agreement can facilitate the withdrawal after a probationary period.
- Certificate of Subordination: Once a lien is filed, it can make it difficult to sell or refinance property. A Certificate of Subordination is a document issued by the IRS that allows a taxpayer’s creditor to move ahead of the IRS’s lien on a specific property to help the taxpayer refinance or sell property more easily. This facilitates transactions that may ultimately help the taxpayer pay off their tax debt and can be particularly useful when the taxpayer needs to restructure finances or manage debts effectively.
- Collection Due Process (CDP) Hearing: Taxpayers have the right to appeal a levy or lien through a CDP hearing, providing an opportunity to negotiate or resolve the debt.
By knowing when to employ each of these strategies, tax professionals can effectively manage IRS actions, ensuring the best possible outcomes for their clients.
Navigate Liens and Levies with IRS Solutions
Tax resolution specialists earn more in less time with IRS Solutions. Our members manage liens and levies, improve client service, and streamline cases with features including:
- Automated solution recommendations and calculations for collections based on what is most likely to be accepted by the IRS, including an Installment Agreement, Offer in Compromise, or Currently Not Collectible.
- Automated client transcript monitoring with our proprietary IRS Advance Notice™ (IAN) system provides early notification of impending IRS actions, including audits and passport forfeitures. This proactive approach enables tax professionals to address issues before they escalate. After the successful conclusion of tax resolution cases, IAN generates steady, year-round income with monitoring plans, enhancing client trust and satisfaction.
Understanding the difference between a levy and a lien is essential for tax professionals responsible for guiding clients through IRS challenges. With the right tools and knowledge, you can effectively navigate the complexities of government actions and ensure successful resolutions for your clients.
Ready to discover the power of tax resolution software that includes everything tax professionals need to help clients facing levies and liens and succeed in the lucrative specialty of tax resolution? Schedule a demo today.
ABOUT THE AUTHOR
David Stone
Helping Accountants Save Time at IRS Solutions
David Stone, an enrolled agent and founder of IRS Solutions, leverages his comprehensive IRS experience to empower tax professionals in navigating complex tax disputes. A proud alumnus of California State University Northridge, David’s journey began as a Revenue Officer at the IRS, where he embraced diverse roles, including working the lien desk and becoming an Offer in Compromise specialist. His transition from the IRS to founding IRS Solutions Valencia was driven by a vision to simplify tax resolution. David’s ingenuity led to the creation of IRS Solutions Software, embodying his commitment to providing effective tools and sharing his extensive knowledge with professionals in the field. As the bestselling author of “Tax Breaks for the Rich and Famous” and “The Great Tax Escape,” David’s expertise continues to guide business owners and accountants alike.
