IRS tax liens and tax levies – these are words often used mistakenly to refer to each other, and are often equally dreaded by those who’ve failed to pay their taxes in full. But in effect, they are different.

What Is a Tax Lien?

A lien is basically a provision to secure the rights to the property of the defaulting taxpayer – it does not involve seizing the property which a tax levy would do. The IRS files a lien when it sniffs potential issues it could face in collecting the tax amount from you. The lien notice is then entered into the files of the office of the public records and gets tagged to whatever property you own. The money you get when you sell that property will go towards the lien. The worst part is, unless the lien is satisfied it will be on your credit report, which could cause issues in securing loans, credit cards or home refinancing. $10,000 is the threshold for a lien.

Explaining Tax Levy

A tax levy is a far more dangerous situation because it implies immediate acquisition of your property to pay off the debt. Unless you pay the taxes due or make some arrangement to pay off your debt, your property or the property you have an interest in – such as your bank accounts, rental income, retirement accounts, accounts receivable, wages, dividends, etc – could be seized. The only things that are exempted from being levied are some tools of your trade, household goods, workers’ compensation, unemployment benefits and other such items which you can find in the Internal Revenue Code 6334.
The IRS will only levy after it has sent you the notice and the demand for payment on assessment of your tax, and you neglected the notice and failed to pay up. Then, around a month before the levy, the IRS will also send a final notice along with a notice informing you of your right to get a hearing. Only if you choose to ignore this will the levy process go ahead.

Dealing with the Lien

In the case of a lien, filing an administrative appeal requesting reconsideration of the lien must be carried out within 30 days of the lien. To prevent a lien, the most obvious answer is to pay the tax amount that is due, at least after the first notice arrives. If you set up a streamlined installment agreement or guaranteed installment agreement, a federal tax lien will not be filed. For agreements such as these to work, the outstanding balance should be only up to $10,000 for guaranteed installment agreement or up to $25,000 in the case of streamlined installment agreement. Now if you owe over $25,000, you can set up a streamlined installment agreement if you pay the amount that has caused the payable sum to exceed $25,000.

A federal tax lien will be removed by the IRS if there was an error in the filing, or if the remaining balance has been fully paid. Even if you’ve satisfied the outstanding balance through other means such as compromise offer, the lien can be removed. A lien could also become unenforceable if it has expired.

Withdrawal and Release of Federal Lien

Withdrawal of a federal tax lien refers to the IRS rescinding the lien in a manner which seems to illustrate that the lien should never have been filed. This usually occurs if the lien was imposed on the wrong person or if there were other errors in the filing. If you feel that you are wrongly filed, contact an IRS agent immediately, get your account history verified and receive confirmation that you have no outstanding tax. IRS also has a new provision that would enable taxpayers to get their liens withdrawn if they fulfill certain requirements.

The release of a lien takes place within a month of the total payment of outstanding tax or the setting up of a streamlined or guaranteed installment agreement. A lien release copy would be given by the IRS which you should bring to the attention of the credit bureaus that can then get your credit reports updated so it will not remain as a blemish.

Now you know what to do when faced with an IRS lien or levy. Secure legal representation and act immediately.