You either forgot to pay your federal income tax debt or you refused to pay your debt. Either way, now you’re in hot water with the IRS. And you can’t stop panicking.
The reality is, it is within the legal rights of the United States government to collect your owed tax amount via two extraordinary means: a tax levy or a tax lien. And unfortunately, these Internal Revenue Service (IRS) collection activities could take a toll on your finances.
The question is, what is the difference between a lien and a levy, and how can you protect yourself if you are facing either type of legal action? Here’s a rundown on a tax lien vs. a tax levy, as well as what tax levy help or tax lien help is available to you.
IRS Tax Levies
Understanding the difference between a lien and a levy is critical, as this can help you to protect your assets and finances. So, for starters, let’s highlight what you need to know about tax levies.
Tax levies are legal actions that allow the IRS to claim specific assets and properties you own. The IRS will use this as a final resort to obtain the tax you still owe it. It is essentially the same thing as the seizure or garnishment of your property.
The IRS may place a levy on all assets that you own. These include your savings and checking accounts, subcontractor pay, retirement accounts, and accounts receivable. You could also get your salaries or wages garnished. In addition, a levy might be placed on your business equipment, house, or motor vehicle.
However, as you explore the difference between a lien and a levy, note that with a levy, the IRS cannot garnish the tools you use as part of your job, or most of your household goods. In addition, the IRS cannot try to garnish income sources that you need to survive during an illness or financial difficulty. These include, for example, worker’s compensation and unemployment insurance benefits.
IRS Tax Liens
When it comes to the difference between a lien and a levy, note that tax liens are legal actions that place claims against assets you own, thus making them collateral for the purpose of securing your tax debt payment. Thus, unlike tax levies, tax liens protect your current assets along with any assets you plan to purchase down the road. Note that although tax liens are usually applied to buildings (real property), they can be applied to other types of property as well, such as the equipment your business uses.
Another key difference between a lien and a levy is that liens are public record, which means they will be published in your town newspaper. As a result, with a lien, anybody who reads your area’s newspaper will learn that you’ve failed to make a tax payment, and thus, the IRS is placing a lien against your property. In addition, the credit bureaus will receive reports of your lien, and this will reduce your credit score.
On the flip side, levy notices are not public record. Likewise, they won’t be shared with credit bureaus. However, you will still have your income and property seized, which can have negative financial implications.
Similarities Between Tax Liens and Tax Levies
Along with understanding the difference between a lien and a levy, it is important to understand these two legal actions’ similarities. For starters, with both tax liens and levies, all of your creditors will be notified of the government’s claim to both your earnings and your property. In fact, in some cases, the government will permit those creditors whom you’ve secured property from within the past 45 days to reclaim that property, or they’ll end up taking priority.
Also, even though there are differences between a tax lien vs. a tax levy, the filings for both types of actions must take place in your state and county of residence. The government will usually file these notices with your clerk of courts or county recorder.
How to Deal with Tax Liens and Tax Levies
As you explore the difference between a lien and a levy, note that it is in your best interest to avoid both types of legal action due to the financial devastation they can cause. However, if you’re already facing such legal actions, you should consult a tax professional to find out about your options for satisfying or reducing your IRS tax debt.
For instance, you can take advantage of an offer in compromise, or OIC, if you can’t pay the full amount of tax due. This option would allow you to settle your debt, which would allow you to pay a smaller amount and still satisfy your tax obligation. In addition, you could pursue a “currently not collectible” status if you are suffering from an extreme financial hardship or another crisis, like an immediate family member’s death or your own disability. In this situation, your debt would be uncollectible for a period of time, generally one year, but the debt still remains with interest and penalties still accruing.
Help with IRS Tax Liens and Levies
If you’ve already received a tax lien or levy notice, the good news is that tax levy and tax lien help is available through Delia Law. We can help you to understand the difference between a lien and a levy, as well as select the best method for getting your lien or levy released.
Get in touch with us to learn more about a tax lien vs. a tax levy, as well as how tax levy and tax lien help can protect your financial situation in the years ahead.