If the IRS is unable to collect taxes from an individual, they will typically resort to one of two collection methods: tax liens or tax levies. Tax liens and tax levies are often confused with one another and, while similar, they involve two very distinct actions. We can help you deal with both so that you don't risk losing property or other assets.
A Tax Lien is when the IRS makes a legal claim against your property in the event that you fail to pay your taxes. This can include your financial assets, real estate, and personal property. The lien won't take effect until the property is sold.
State tax liens are usually listed on the taxpayer's credit report, as they're a matter of public record.
The easiest and best way to get rid of a lien is to pay your taxes in full, but if you can't, it will be removed within 30 days of settling the balance. Should you wind up with a tax lien on your property, we'll help you determine the best option to have it removed in the timeliest manner possible, given your financial situation.
A tax levy, unlike a lien, involves the IRS's actual seizure of assets and property to fulfill your owed taxes. Yes, they can legally do this, but you'll be notified first. A levy differs from a lien because in the case of a lien, the IRS simply makes a claim against your property or assets for protection, but you typically won't be affected until you physically go to sell the property or assets. In the case of a levy, on the other hand, your property can be taken directly from you.
If you know you owe the IRS money, make sure you're thoroughly reading all communications sent to you. Once they've assessed your liability, the IRS will generally start by issuing a "Notice and Demand for Payment". If you ignore this letter or refuse to pay the amount owed, they'll follow up with a "Final Notice of Intent to Levy and Notice of your Right to a Hearing".
If you don't respond to this within thirty days, then the IRS will issue the levy and seize your property. This is why it's so important to pay attention to IRS communications, and we're here to help you avoid a levy by making other arrangements that can work for you. The one thing you never want to do is ignore the IRS.
A wage levy is the most common type of levy and it allows the IRS to garnish wages directly from your employer. It's generally organized through your company's HR department, and the IRS will order your employer to subtract a certain amount of money from your paycheck each pay period. This amount will go toward your outstanding debt and the activity will continue until the back taxes, interest and penalties owed are covered, you've reached another resolution, or the tax issue has expired. The amount the IRS can take is limited to 25% of your disposable earnings or the amount by which your weekly wages exceed 30 times the minimum wage (whichever is lower).
A bank levy involves the IRS contacting your bank to freeze your funds. After 21 days, they'll start deducting the funds from your account. If the first levy doesn't resolve your tax issue, then they'll continue the levy as your funds replenish until you are all paid up in full.
While property seizure is not as common as wage garnishment and bank levies, it does happen. Essentially, the IRS has the authority to seize and sell off just about any asset in order to fulfill your tax obligation. This includes real estate, cars, and anything else of value (jewelry, artwork, etc.)
The IRS can also withhold money owed to you that would otherwise come in the form of a tax refund. It can even take your state and municipal refunds.
The IRS can also levy forms like 1099s which are generally used by freelancers and independent contractors. They can seize any amount of money you're owed with a 1099 levy, but they can't attempt to seize any income for anticipated future work that hasn't been performed.