You might have heard the words tax levy and tax lien used, but are they used interchangeably? Or are they different? This blog will discuss the differences and similarities between the two.
There are substantial differences between an IRS levy and an IRS lien. An IRS levy is the actual seizure of property you own. For example, if the IRS levies your bank account, they will take the money out of your bank account. If the IRS levies your physical property, it's an actual seizure of that physical property. On the other hand, an IRS lien is a public document that notifies any creditors that the IRS has a right to your property; however, a lien is not an actual physical seizure of your property. For example, if the IRS files a notice of federal tax lien and you attempt to sell your home, you won't be able to get that home sold without the lien being satisfied first. The property is not taken from you, but you are unable to sell the property until the lien has been handled with the IRS.
Procedurally, a tax levy and tax lien are handled similarly. Before the IRS can levy and seize any of your property, there are constitutional due process procedures that are put into place. The IRS will have to send you a final notice of intent to levy, which you can appeal, even all the way up to Tax Court, if the IRS tries to levy that property. With a lien, once the IRS issues a lien, they must send you a notice notifying you of a federal tax lien against you. However, you can dispute the lien through a Collection Due Process hearing.
The first step in handling both a levy and a lien is to request a Collection Due Process (CDP) hearing, where you can dispute either the attempted levy of property by the IRS or the lien that has been filed against you.
It is important to note that if you had a previous opportunity to dispute a balance owed from a prior audit, you will not be able to dispute the IRS balance during a Collection Due Process hearing. What you can do as part of the hearing is request a collection alternative to either the proposed levy or the lien that was filed. Some collection alternatives that may be available to you are installment agreements, the IRS placing you in Currently Not Collectible status, or for the IRS to accept an offer in compromise on your behalf.
During the Collection Due Process hearing, your case will be assigned to an IRS appeals officer. If the IRS appeals officer does not accept your proposal, then they will issue a Notice of Determination. The Notice of Determination will explain the reason why the IRS appeals officer denied your collection alternative or disagreed with your argument about the amount of tax due. You have 30 days from the date of the Notice of Determination to appeal the decision in the United States Tax Court. If you're unable to resolve the case with the IRS counsel's office, the case will then proceed to court. The standard that the judge uses to side with you or with the IRS is the Abuse of Discretion Standard – which means that the IRS must show that they did not abuse their discretion when they did not accept your proposed collection alternative.
While this might feel a bit overwhelming, we hope that this helps clarify the differences between a tax levy and a tax lien. If you have any additional questions or would like assistance with a tax debt issue, please click here for more information or watch the video below!
