An unpaid federal tax debt can affect more than your tax return. Depending on the circumstances, the IRS may place a lien against your property or use a levy to take money or other assets to satisfy the debt.
These two collection tools are often confused, but they work differently. A tax lien is a legal claim against property. A tax levy is the actual seizure of property or funds. Understanding which one applies to your situation can make a significant difference in deciding what to do next.
Gabaie & Associates represents individuals and business owners in Frederick dealing with IRS tax liens, bank levies, wage levies, property seizures, and other federal tax collection matters.
If you are facing an IRS tax lien or levy in Frederick, call Gabaie & Associates at (410) 358-1500 or contact the firm online to discuss your situation.
What Is an IRS Tax Lien?
An IRS tax lien is the federal government’s legal claim against a taxpayer’s property when federal taxes remain unpaid.
A lien is not the same as the IRS taking your property. Instead, it protects the government’s interest in property you already own and, in some circumstances, property you acquire while the lien remains in effect.
A federal tax lien can affect real estate, vehicles, financial assets, and other property. It may also make it more difficult to sell or refinance property because the government’s claim must be considered.
The IRS generally files a public Notice of Federal Tax Lien when its claim needs to be made known to creditors. Whether a notice is filed depends on the circumstances and IRS procedures.
A lien does not necessarily mean the IRS is about to take your home or empty your bank account. It is a claim securing the government’s interest in the unpaid tax.
What Is an IRS Tax Levy?
A tax levy is different. A levy allows the IRS to actually take property or rights to property to satisfy an unpaid tax debt.
Depending on the circumstances, an IRS levy may affect:
- Money in a bank account
- Wages or other income
- Business accounts and accounts receivable
- Vehicles
- Real estate
- Certain investment or retirement assets
- Other property or property rights
For example, a bank levy can place a hold on funds in your account, while a wage levy can require an employer to send part of your wages to the IRS.
Tax Lien vs. Tax Levy: What’s the Difference?
The simplest distinction is that a lien is a claim, while a levy is a collection action that takes property or funds.
A lien protects the IRS’s interest in property because of an unpaid tax debt. A levy allows the IRS to take property to satisfy that debt.
That difference matters when deciding how to respond. Someone facing a federal tax lien may be concerned about selling a home or refinancing property. Someone facing a levy may have a more immediate concern, such as losing access to money in a bank account or having wages withheld.
Both can be signs that an unresolved tax debt has progressed into the IRS collection process. Addressing the underlying liability and understanding the status of the IRS account are important parts of determining what options may be available.
How Can an IRS Tax Lien or Levy Affect You?
The consequences depend on the type of collection action and the property involved.
A tax lien can complicate a real estate transaction or affect your ability to use property as collateral. A levy can directly affect your finances by taking money from a bank account, withholding wages, or reaching other assets.
For a business owner, the impact can be even broader. An IRS levy involving business accounts or accounts receivable can interfere with the company’s ability to pay employees, vendors, and operating expenses.
The amount of the tax debt is also only part of the picture. The IRS may consider the taxpayer’s financial circumstances, the type of tax involved, the age of the liability, and the history of the account when determining collection actions.
That is why there is no single response that works for every tax lien or levy.
Can an IRS Tax Lien or Levy Be Removed?
Potentially. The available relief depends on the type of collection action, the status of the tax account, and the taxpayer’s circumstances.
A tax lien may sometimes be withdrawn, released, or otherwise addressed when the requirements for a particular form of relief are met. A levy may be released in situations such as economic hardship, an error in the collection process, or when the underlying tax liability has been resolved.
Gabaie & Associates can review the tax account and determine whether the immediate issue is the lien or levy itself, the underlying tax liability, or both.
What Should You Do If the IRS Has Filed a Tax Lien?
If the IRS has filed a federal tax lien, determine which tax periods and liabilities are involved.
You should also consider how the lien affects your immediate plans. If you are trying to sell or refinance a home, transfer property, obtain financing, or resolve a business transaction, the lien may need to be addressed as part of that process.
Depending on the circumstances, possible options may include:
- Paying the tax debt in full
- Entering into an installment agreement
- Requesting withdrawal of a Notice of Federal Tax Lien when you meet the requirements
- Seeking other IRS collection alternatives
- Challenging an error involving the underlying tax liability
A tax lien does not automatically mean that the IRS will seize your property. However, leaving the underlying debt unresolved can allow the government’s claim to remain in place.
What Should You Do If the IRS Has Issued a Levy?
A levy generally requires more immediate attention because it involves the actual seizure of money or property.
If your bank account has been levied, for example, the bank may place a hold on funds before sending them to the IRS. A wage levy can affect your take-home pay, while a levy against business assets or accounts receivable can interfere with normal operations.
If a levy has already been issued, determine whether the funds or property have been transferred to the IRS and what type of levy is involved. The answer can affect what steps remain available.
A levy may sometimes be released when:
- The tax debt has been paid
- The IRS accepts an appropriate payment arrangement
- The levy is creating an economic hardship
- The IRS determines that the levy was issued improperly
- Releasing the levy is necessary under applicable IRS procedures
- Another collection alternative is appropriate
The fact that a levy has already been issued does not necessarily mean the situation cannot be addressed. The available options depend on the circumstances and how far the collection process has progressed.
What If You Cannot Pay Your Federal Tax Debt?
Many taxpayers facing a lien or levy cannot simply write a check for the full amount the IRS says they owe. If that is the case, resolving the debt may require looking at your complete financial situation.
An installment agreement may allow you to make payments over time rather than paying the entire balance immediately. The IRS also has programs for taxpayers who cannot currently afford to make payments without falling behind on necessary expenses, including Currently Not Collectible status.
In some circumstances, an Offer in Compromise may provide a way to settle qualifying tax debt for less than the full balance.
These options are not interchangeable. An agreement that works for one taxpayer may be unrealistic for another. Income, household expenses, assets, equity, tax liability, and the taxpayer’s ability to pay can all affect which options are available.
Can a Tax Attorney Help With an IRS Lien or Levy?
Tax lien and levy matters can involve both immediate collection concerns and older tax issues that led to the debt in the first place.
At Gabaie & Associates, an attorney can review your IRS account, identify the collection action involved, and help determine what response makes sense based on your circumstances. This may include:
- Reviewing federal tax liens and levy notices
- Examining the IRS account and payment history
- Identifying the tax periods and liabilities involved
- Determining whether the IRS balance appears accurate
- Evaluating whether a lien can be released or withdrawn
- Seeking release of a levy when appropriate
- Negotiating an installment agreement
- Requesting Currently Not Collectible status
- Pursuing an Offer in Compromise
- Challenging errors involving the tax debt or collection process
- Communicating with the IRS on your behalf
The goal is not simply to address the collection notice in front of you. It is to understand why the IRS is taking action and work toward a resolution that fits the underlying tax problem.
Do You Need an IRS Tax Lien and Levy Attorney in Frederick?
If you live or operate a business in Frederick and are dealing with an IRS tax lien or levy, Gabaie & Associates can review your situation and explain the options available to you.
The firm has a Frederick office at 5100 Buckeystown Pike, Suite 250A, Frederick, MD 21704. Juda Gabaie represents taxpayers before federal and state tax authorities and is admitted to the U.S. Tax Court and Maryland Tax Court.
Whether you are concerned about a lien affecting your property or an IRS levy taking money from your account, wages, or business, getting a clear picture of your tax account can help you decide what to do next.
Call Gabaie & Associates at (410) 358-1500 or contact the firm online to discuss your IRS tax lien or levy.
