You hear it all the time on the news about someone getting their bank account levied or someone getting a lien placed on their house. It seems scary and like most things with the IRS, the difference between a lien and a levy can be confusing to a taxpayer. Most taxpayers aren’t sure what an IRS wage levy is or how to know if you have a tax lien. We decided to break down the difference between a levy and lien and what you can expect from either action.
First, let’s start by going over a few similarities: In both cases, levies and liens can be used to collect on the balance due to the IRS. The IRS will also issue a notice, like a CP90, to the taxpayer notifying them of the action (lien or levy) being taken. They both also allow 30 days from the date of the notice to dispute the action by filing an appeal for a Collections Due Process Hearing.
What Is a Tax lien?
A Federal Tax Lien is a claim against your property in order to protect the IRS’ interest. For example, the IRS would file a Federal Tax Lien against your residence with the purpose of preventing you from selling your home without paying anything towards your IRS balance. Now, if you didn’t sell your home, the lien doesn’t necessarily have an effect on you. Tax Liens are not active collection threats. Liens can also affect your credit score as the IRS notifies all credit agencies of the tax lien. This can cause taxpayers to be unable to qualify for a loan when a Federal Tax Lien is in place. Although sometimes liens are put in place prior to resolving your IRS liability, liens can also be filed once a resolution is in place.
What is A Levy?
A levy from the IRS is current and active collection action and should not be ignored! When a levy has been issued, the IRS has the ability to seize your property (i.e. income, assets). Typically, levies show up in the form of a wage levy, bank levy, or accounts receivable levy.
An IRS wage levy is of course a levy on your wages. Depending on if you are a W2 or 1099 employee, the IRS may be able to seize 100% of your wages. A bank levy takes action against your bank account and would seize all funds found in the bank account. An accounts receivable levy typically occurs if you are self-employed and targets your customer base. The IRS will send a notice of levy to your customers and they will then have to remand all funds that were to be paid to you, to the IRS. Levies are issued when you are in collections with the IRS. However, once your liability is in a resolution, you are protected from the threat of a levy.
It’s important to know the differences between a levy and a lien because some require immediate action and others you have a little more time to resolve the issue. Although some of this may sound scary, the great news is they both can be resolved! If you’ve been threatened with a lien or levyby the IRS, you don’t have to fight it alone. Polston Tax is here to help you negotiate with the IRS. Polston Tax has a team of tax attorneys that can not only try and get your levy and liens released, but also help put a stop to them in the first place. Call us today at 844-841-8957 or click below to schedule your free consultation!