For the next few weeks, we’re running a “Slice of Life” series where we address real-life problems our clients bring us after they’ve filed their taxes (or not). You can read Part 1 – Slice of Life: I’ve Been Scammed!, Part 2 – Slice of Life: I Hate Filing Quarterly, and Part 3 – Slice of Life: I’m Running Scared of the series.
SLICE OF LIFE #4: A client calls us and asks, “What’s the difference between a levy and a lien?”
What’s usually happened is that this client has received a scary notice from the IRS and needs to know what is going on.
A lien and a levy are two different ways the IRS can use to force you to pay back taxes. Usually, the lien is the first step – if the process needs to be escalated, the levy comes next.
A lien is basically a mortgage. When the IRS files a lien against your property, they are formally laying claim to your assets, so if you try to sell your home or land, the money will go to the IRS instead of to you. (This is usually the first panicked phone call we get.) The lien formally notifies any potential buyers that they are to pay some or all of the amount directly to the IRS.
In order to get the lien lifted, you need to pay your tax debt. (Or talk to us, so we can make an offer in compromise or get the debt moved to Currently Not Collectible status.) Once the debt is retired, it usually takes 30-60 days for the lien to be removed, at which point you can sell your assets whenever you like.
However, if you don’t make any arrangements to pay the debt – if you ignore the lien – then the IRS steps up its game and introduces a levy.
When the IRS levies your bank account or wages, it actually seizes your money in order to pay your tax debt. The government may take the balance out of your bank account, or garnish your salary each paycheck period, and put that money towards the amount of taxes you owe until the debt is retired.
A levy is a last resort. If you are working with the IRS (and with us) to make payment arrangements, you should not have to worry about having your assets seized. The IRS will contact you multiple times in an effort to resolve the issue. If you don’t respond to any of these communications, you’re much more likely to end up with a lien or, ultimately, a levy. And you don’t want that.
Remember, we can help you get these issues resolved and get a payment plan in place so the situation doesn’t get this serious. The sooner you get in touch with us, the better.
If you have questions about liens or levies – or if you’ve received some unsettling mail from the IRS – give us a call at 844-841-9857, or schedule a free consultation here.