IRS Lien vs. IRS Levy

Differences between an IRS Lien and IRS Levy


An IRS lien is a measure taken by the IRS to protect the value of the debt it believes it is owed.  The government doesn’t actually take anything from the taxpayer by virtue of the fact that an IRS tax lien has been filed. An IRS tax lien just secures its places and indicates a willingness of the government to take action against the value of the taxpayer’s property to force the taxpayer to pay the IRS lien.

IRS Lien | Federal Tax Lien

The IRS lien is created immediately when the taxes have been assessed (even if the IRS tax lien is not filed / published / recorded in the public record until later). An IRS may file a federal tax lien even when the taxpayer thinks collections activities have stopped. For example, even if the taxpayer is on a payment plan, the IRS may send Letter 3172 and file a lien just to protect its interest in case the taxpayer should ever fail to make agreed-to payments.

The IRS lien applies to everything the taxpayer owns, after the tax lien is filed, and anything the taxpayer acquires after the tax lien has been filed/recorded.

IRS tax liens may be withdrawn, subordinated discharged or released.

IRS lien release

The IRS may release its lien for a few reasons. The most common reason for the IRS to release a tax lien is after payment has been made on taxes and penalties owed to the IRS.

IRS Lien Discharge

The IRS tax lien may discharge its lien on a particular piece of property to allow the taxpayer to sell the property (it won't be sellable if there is a recorded tax lien) if the IRS believes it will help the taxpayer be more likely to pay off their IRS debt.  

IRS Lien Subordination

The IRS may also allow their lien to be subordinated (lower their place in the payback line) if the IRS tax lawyer can convince them that it is in the IRS’s best interest. An example is, again with property, perhaps the taxpayer can get a mortgage on the property and use the equity to pay off the tax lien.  The IRS may agree to this sort of a deal if all (or a significant portion) of the newly-borrowed money is going to them.

IRS Lien Withdrawal

The IRS may withdraw their federal tax lien, which eliminates all filings and is the only way to erase it from the taxpayer’s credit record. If the taxpayer qualifies for IRS lien withdrawal, the IRS will actually send the notice of withdrawal to the three main credit bureaus.

A lien typically wont be filed until it reaches $10,000.00. After the taxpayer starts a direct debit payment installment agreement, and the lien is less than $25,000 (or paid off and you now owe less than $25,000), the taxpayer will be able to request “Withdrawal of Notice of Federal Tax Lien”), if the direct debit installment agreement provides for payment in full within 60 months or when the IRS statute of limitations expires, if earlier and have made 3 months worth of payments on the IRS installment agreement.

IRS Levy | IRS Seizure

The IRS levy is a more serious effort by the IRS because unlike the recording of an IRS tax lien, an IRS levy or seizure is when the IRS actually takes something from the taxpayer (property, wage garnishment). IRS levy typically refers to cash (i.e. from wage garnishment, investment account). IRS seizure is a type of levy that typically refers to when the IRS takes something tangible (i.e. a car or real estate).

IRS Wage Garnishment

IRS can levy against a taxpayers wages by sending a letter to the taxpayer’s employer and directing the to take a certain amount out of the taxpayer’s paycheck for each pay period until the federal tax lien is satisfied. Here is the IRS Chart that Shows What is Exempt from IRS Wage Garnishment, everything above amount listed in chart will be going to the IRS continuously until the lien is paid off.

The IRS wage levy is a “continuous levy” - the wages will continuously be garnished per pay period until the IRS lien is satisfied. This is different to the IRS levy of a bank account or investment account, which are one-time levies (not continuous).

IRS Levy of Bank or Brokerage Account

When the bank or other financial institution receives a IRS levy notice, only the amount in the financial account, on the date the notice is received, is subject to the IRS levy. So if a brokerage house receives a notice of IRS levy on January 1, and a deposit is made on January 2nd, only the amount in the account on January 1 is subject to being levied.

The bank will hold the amount levied for 21 days. If the taxpayer has not done anything to get the IRS levy released within that 21 day period, the financial institution will transfer the amount being held to the IRS.

What happens frequently is that bank policy (not IRS law) will freeze the entire account until the IRS tax levy is dealt with. If the IRS levy amount is substantially less than the value of the account (again, perhaps because of a subsequent deposit), the taxpayer may ask the bank to release the levy amount to the IRS prior to the 21 day period so that they can access their subsequently-obtained funds.

Can I file and appeal after the IRS has commenced levying?

Yes, generally filing for an appeals hearing will stop the IRS’s levy efforts (referred to as an “equivalency hearing” if its file within 1 year of the date of the 1058 (IRS intent to levy) letter. The only difference (and reason why you don’t want to wait this long) is that the taxpayer has no right to appeal the results of an equivalency hearing to tax court (the way you do if you appeal within 30 days per the 1058 letter).

More on the differences between and IRS levy and IRS Lien.

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