Tax Levies vs. Tax Liens

tax liens vs tax levies and how they work

You are not alone if you are struggling to pay the IRS what you owe them. Many taxpayers find it difficult to pay their taxes at least once during their lifetimes, and you have options if that is the case. Most taxpayers will benefit from working with a Seattle tax attorney if they’re struggling to fully pay their debts. We aim to help those in Seattle, Bellevue, Tacoma, Kirkland, Lynnwood and the rest of Washington state deal with tax levies, tax liens, and other tax liabilities.

What Is a Federal Tax Lien?

The government needs to protect its interests when someone doesn’t pay their taxes on time. A federal tax lien helps them do that. When a lien is placed upon your assets, it means the government has a claim to the assets if you don’t pay your debts on time. A lien protects the government by giving them something to use to settle your debts if you don’t pay.

A federal tax lien may also be referred to as an IRS tax lien, secret tax lien, general tax lien, or a silent tax lien.

You will generally be given a tax lien notice before the government places a federal tax lien on your assets. Even when an IRS lien is placed on one of your assets, you’ll still be the owner of the asset. However, tax liens allow the government to set a claim on that asset, such as a property, while you own it. Liens can also be placed upon future assets acquired by you.

Despite you still owning the property when a federal tax lien is placed upon it, a lien affects you very seriously. Since a lien secures the government’s claim on your property, the government has the right to sell the lien to investors at fair market value. The investors then repay your debt.

However, the government selling the federal tax lien to investors doesn’t stop you from owing money. The IRS collects the money you owe them from the investor instead, but you may have to pay back the investors. The investors will have the right to collect the amount they paid from you. Basically, you’ll owe the investor instead of the IRS. The investor may also have the right to seek interest.

What Causes Tax Liens?

You may get a federal tax lien after the IRS discovers you have an outstanding tax balance you need to pay. In an attempt to get you to settle your debt, the IRS sends you a Notice and Demand for Payment letter to inform you of the accounts receivable.

If you can’t pay or refuse to pay after the IRS sends you this letter, then it may lead to lien filing, where the IRS files a lien against your property. The IRS will also notify other creditors of your debt by filing a public document called a Notice of Federal Tax Lien. This ensures your tax debt is prioritized above all other debts you owe. The federal tax lien attaches the government to your property until you pay off your tax debt to the IRS.

You generally have 10 years to settle your debt once the IRS files to place a lien on your property. You may be able to extend this timeframe if needed. However, if your debt isn’t settled within the timeframe the IRS sets, then they may put an IRS tax levy on your property.

What Is a Federal Tax Levy?

An IRS tax levy is the seizure of one of your assets, such as a piece of property. The IRS may take this piece of property into possession to settle your debt. An IRS levy generally comes after an IRS tax lien. IRS levies legitimize the government’s right to seize your property.

Levy notices are usually issued before an IRS tax levy is filed, so you’ll often have time to seek a Seattle tax lawyer’s help before the IRS takes your assets or freezes your accounts. It would be advisable to seek help, as your property may be sold after an IRS tax levy. You may never get your property back after the tax levy, as the IRS may use it to settle your accounts receivable.

Before issuing tax levies, the IRS sends out a public document called a Notice of Intent to Levy. The IRS also sends you a letter, often via certified mail, letting you know that you have a right to a Collection Due Process hearing.

So, you should have plenty of notice if the IRS plans to place a tax levy on any of your assets. That may give you enough time to contact a Seattle tax lien attorney for help. It’s vital to always get help when dealing with liens and levies, as attorneys understand the Internal Revenue Code very well.

If you don’t pay your tax debt when the IRS issues a levy, then the government may access your bank account and seize any financial assets you have. That’s why it’s important to try and pay any taxes owed. If you know you owe taxes that you’re struggling to pay, then you should contact a Seattle tax attorney to help you figure out a payment arrangement. A levy affects you severely, so do everything you can to avoid one being placed upon any of your assets.

What Is the Difference Between a Lien and a Levy?

When the IRS files for a lien, the lien protects the government, but it doesn’t lead to your tax debt being settled. Therefore, your property will remain yours. Basically, the lien attaches the government to the property so they can levy it in the future, but you still have possession of any assets the IRS has placed any lien on.

A lien is like a warning that a levy may occur if you don’t pay your debts. A Notice of Federal Tax lien also ensures all other creditors know that paying the IRS takes priority over other debts. Then, the IRS must file a levy before seizing and selling your property.

Can the IRS Put a Levy or Lien on Your Real or Personal Property?

Tax liens can be placed upon any of your assets valuable enough to cover your tax bill. This includes financial assets such as bank accounts and tangible assets such as personal property, real property, business property, and business equipment.

If you only own shared property, then an IRS tax lien can be placed upon your half of this shared personal property.

A federal tax lien can also be applied to any future assets acquired by you. For example, if you figure out how to buy a home with unpaid taxes, the lien will automatically attach to your new home. IRS collectors need to protect the government’s interest. The government’s interest is protected when an existing lien is automatically applied to any future properties you purchase or inherit.

Can You Sell a Property With a Federal Tax Lien on It?

You can sell a property that has lien on it, but first, you need to get permission from the person who holds the lien. In the case of judgment liens, you’ll have to contact the person who placed the judgment lien on your house. If it’s a mortgage lien, then you’ll have to contact your mortgage company.

In the case of a federal tax lien, you’ll need permission from the IRS if you wish to sell the property. However, the IRS may wish to sell your property instead, and the IRS may have the legal right to do so to recoup what you owe in back taxes.

A federal tax lien can also scare away potential buyers, and a title company won’t be able to sell a property with a tax lien on it until the federal tax lien is fully paid off.

Is an IRS Tax Lien on Property Public?

IRS tax liens are usually public record. All the information associated with the lien is available on the public record for anybody interested to view. Having this information available to the public isn’t usually something you can prevent, and the information automatically becomes public when an IRS files a Notice of Federal Tax Lien.

The Notice of Federal Tax Lien secures the government’s legal right to any of your property subject to a lien. Therefore, you most likely can’t fight the IRS if you don’t want the Notice of Federal Tax Lien to be on public record.

Will an IRS Tax Lien Show Up on My Credit Report?

Credit reporting agencies can find out about any liens on your assets. The credit reporting agencies can then ensure the IRS lien shows up on your credit report.

A lien may impact your credit rating for some time. They can remain on your credit report for up to 7 years, even if you’ve paid off your debt.

What Is the Statute of Limitations on Tax Debt?

After the IRS assesses you, it has 10 years to file a legal claim against you for owing money. However, sometimes the IRS can extend how long it has to take action.

If you’re having trouble understanding the Statute of Limitations surrounding tax filing and back tax collection, then consider speaking to an attorney who can explain how the Statute of Limitations impacts your situation.

How to Avoid Leans and Levies

Pay Your Taxes

The simplest way to avoid a lien or levy as a taxpayer is to pay your taxes on time and in full. This can be very difficult for some taxpayers, and that’s understandable. If you aren’t able to pay your taxes in full, then you should contact an attorney or tax professional. You may be able to negotiate a payment plan with the Internal Revenue Service.

The easiest way to get rid of a lien or levy, even after one has been applied to your property, is to pay off your tax debt in full, too. You have options as a taxpayer if you can’t afford to pay the full amount of your tax liability straight away. Just ensure you contact an attorney when needed, and never ignore communications from the IRS. If you ever have questions about anything regarding the Internal Revenue Code, then speak to your attorney.

Ask for an Extension

You’ll need to pay off your tax liability within a certain amount of time. If you want to avoid the IRS using a federal tax lien or tax levy to make a legal claim to your property, then you should ask for an extension on the time you have to pay off your tax debt.

You may be able to receive an extension of up to 120 days to pay your tax bill. You may also be able to pay off your tax debt in monthly installments. You’re far from the only taxpayer struggling to pay off the full amount of their tax liability at once. Try to find an IRS-approved way to pay off the debt that works for you.

If you have a payment plan, then make all your payments on time to avoid a federal tax lien or levy being placed upon your property.

How a Seattle Tax Attorney Can Help You With Tax Debts

An attorney can help you in different ways depending on how fast you contact one after IRS collectors get in touch with you. You should contact an attorney any time you have a question about your rights and obligations regarding your tax liability, as tax attorneys understand tax laws very well.

There are several things your attorney can do to help you if the IRS has stated they’re going to place a lien or levy on your business property, personal property, bank accounts, or future assets.

Determine the Validity of the Tax Lien or Tax Levy

Sometimes a tax lien or tax levy may be filed in error. Your attorney can assess whether or not the lien or levy is valid. There are also several things that can render a lien or levy invalid, such as seizing an exempt property. Your attorney may be able to help you appeal the lien or levy if it’s invalid.

Negotiate an Installment Agreement

If you can’t pay your taxes upfront, your attorney may be able to help you negotiate an installment agreement that works for you. An installment agreement is where the IRS collects a certain amount of money from you every month to pay off your tax debt. You can think of it as just another monthly payment you have to make, then find a way to fit it into your budget.

Not every taxpayer will be allowed to make an installment agreement with the IRS. Work with a great attorney to maximize your chances of being allowed to pay in installments.

Note that a lien may still be placed on your assets, and a Notice of Federal Tax Lien may still be filed, even if you’re granted permission to play in installments.

Negotiate a Settlement Agreement

Instead of an installment agreement, your attorney may work to win you a settlement agreement instead. They may demonstrate that you’re in economic hardship to try and get the amount you owe lowered.

The IRS may not lower the amount it has levied against you, but there are specific circumstances where you may be able to have your bill decreased.

File a Request for a Hearing

You have 30 days from the time the IRS first contacts you to file for an appeal against the levy or lien. Your attorney may file a request for a Collection Due Process hearing. Sometimes a levy or lien can be stopped at this hearing, but not always.

Help You Enter the Collections Appeal Program

You may be able to file an appeal through the Collections Appeal Program. Your attorney may be able to offer advice and help you file your appeal. You’ll need to work with your attorney closely so they can help you build the best possible case to have success with your appeal. If you don’t win your appeal, then you won’t be able to appeal again.

Stop a Levy

If there are any liens on your assets, then there’s a chance that the government could levy them. If the IRS informs you that it plans to levy one of your assets, then a good Seattle tax lawyer may be able to help you stop this levy from happening.

However, you need to act fast so your attorney can try to help you before the levy is placed on any of your assets. It’s much harder to stop a levy once the IRS has started the process of levying your property.

Is It Possible to Financially Recover After Tax Debt?

It’s absolutely possible to recover after tax debt. You can recover even if the IRS files a lien or places a levy on your property. Past liens will remain public record if a Notice of Federal Tax lien was filed. However, after seven years, the lien or levy will no longer be on your credit report.

Contact Seattle Legal Services, PLLC, if a federal tax lien or levy may be placed upon your physical assets or bank accounts. An attorney may be able to help you negotiate with the IRS to find an alternative way to pay the taxes you owe. Your attorney may also help you fight to have any liens or levies removed from your property and other assets. Get in touch with our trusted tax debt attorney at 206-895-7268.