What Are The Differences Between An IRS Lien And An IRS Levy?

It’s like trying to decipher between a sticky note reminder and a bulldozer – understanding the disparities between an IRS lien and an IRS levy can save you from a world of financial woes. An IRS lien is a claim on your assets as security for unpaid taxes, while an IRS levy is the actual seizure of your assets to cover the tax debt. Let’s investigate the nitty-gritty details to navigate the murky waters of tax collections with ease.

Key Takeaways:

  • Ownership: An IRS lien is a legal claim on property to secure tax debt, while an IRS levy involves the actual seizure of property to satisfy a tax debt.
  • Impact: A lien acts as a warning to creditors that the IRS has a claim on your property, while a levy involves the IRS taking possession of your property to sell and pay off the debt.
  • Timing: A lien is typically filed before a levy as a way for the IRS to secure its interest in your assets, whereas a levy is the actual action taken by the IRS to collect on the debt.
  • Resolution: To remove a lien, you must pay off the tax debt or reach a settlement with the IRS, while to release a levy, you also need to satisfy the tax debt or come to an agreement with the IRS.
  • Options: With a lien, you may still have control over your property and can sell it, whereas with a levy, the IRS can seize and sell your property without your consent.

Defining the Terms

What is an IRS Lien?

Your first question might be, “What exactly is an IRS lien?” Well, an IRS lien is a legal claim against your property to secure payment of your tax debt. This means that if you don’t pay your taxes, the IRS has the right to seize your assets to cover what you owe. This can impact your ability to sell or refinance your property until the tax debt is resolved.

What is an IRS Levy?

The next term you might want to understand is an IRS levy. The IRS levy is when the IRS actually seizes your property to satisfy a tax debt. This could mean they take funds from your bank account, garnish your wages, or even seize your assets. Unlike a lien, which is a claim against your property, a levy is the actual seizure of your assets to settle your tax debt.

It’s crucial to differentiate between an IRS lien and an IRS levy. While a lien is a legal claim against your property, a levy is the actual seizure of your assets by the IRS. Understanding the distinction can help you navigate tax-related issues and make informed decisions to resolve any tax debts you may have.

Key Differences

Impact on Assets

On one hand, an IRS lien is a claim used as security for a tax debt, which means it can potentially affect all assets owned by the taxpayer. However, it does not result in the immediate seizure of assets like an IRS levy.

Notification and Timing

Impact – Regarding notification and timing, there are significant differences between an IRS lien and an IRS levy. An IRS lien typically arises after the IRS assesses the tax and sends a Notice and Demand for Payment. On the other hand, an IRS levy requires no prior notice before the IRS seizes assets to satisfy a tax debt.

Plus, an IRS levy can happen quickly and may catch the taxpayer off guard. It is crucial to understand the distinctions between these two IRS actions to effectively address and resolve tax issues.

Consequences and Implications

Credit Score Effects

Many individuals are unaware of the impact that an IRS lien or levy can have on their credit score. An IRS lien can negatively affect your credit score as it indicates to creditors that you have outstanding tax debts. This can make it harder to secure loans or credit in the future.

Business and Personal Life Impact

Credit

implications can extend beyond credit scores, affecting both personal and business aspects of one’s life. A levy can result in the seizure of assets, such as bank accounts, real estate, or vehicles. This can disrupt cash flow for business operations or personal finances, causing significant stress and financial strain.

Summing up

With this in mind, it’s crucial to understand the distinctions between an IRS lien and an IRS levy. While both involve the IRS claiming your assets, a lien is a legal claim against your property to secure payment of taxes, whereas a levy allows the IRS to seize your assets to cover delinquent taxes. Being aware of these disparities can help you navigate your tax situation more effectively and avoid potential financial repercussions.

FAQ

Q: What is an IRS lien?

A: An IRS lien is a legal claim against your property to secure payment of your tax debt.

Q: What is an IRS levy?

A: An IRS levy is when the IRS seizes your property to satisfy a tax debt.

Q: What is the main difference between an IRS lien and an IRS levy?

A: The main difference is that a lien is a claim against your property, while a levy involves seizing and taking possession of your property.

Q: How does an IRS lien affect me?

A: An IRS lien can negatively impact your credit score and make it difficult to sell or refinance your property.

Q: What should I do if I receive a notice of an IRS lien or levy?

A: If you receive a notice of an IRS lien or levy, it’s important to contact the IRS immediately to discuss your options and prevent further action.

Orlando R. Dizon, Esq.