The Difference Between a Tax Lien and a Tax Levy

An IRS tax lien is the federal government’s right to ensure payment of owed taxes by allowing them to place a secured debt on a negligent taxpayer’s property. Tax liens often result because of delinquent taxes and can be placed on real property or personal property. Typically, they act almost as a mortgage against the property and only come into play when the taxpayer is attempting to sell the real or personal property. At the time of sale, the IRS can then claim a right to the proceeds of the sale.

The IRS may file a federal tax lien if a taxpayer owes back taxes. According to the Internal Revenue Code, Section 6321, “[i]f any person liable to pay any tax neglects or refuses to pay the same after demand, the amount including any interest, additional amount, addition to tax, or assessable penalty, together with any costs that may accrue in addition there to, shall be a lien in favor of the United States upon all property and rights to property, whether real or personal, belonging to such person.” The IRS files tax liens to assist in its efforts to collect the taxes owed. A lien gives the IRS a legal claim to your property as security or payment for the tax liability. A tax lien is different than a wage garnishment or bank levy.

In order to have a lien released a taxpayer must obtain a Release of the Notice of Federal Tax Lien. Generally, the IRS will not release a lien until the tax has either been paid in full or no longer has a legal interest in collecting the tax. The IRS has standardized procedures for lien releases, discharges and subordination. In situations that qualify for the removal of a lien, the IRS will generally remove the lien within 30 days and the taxpayer may receive a copy of the Certificate of Release of Federal Tax Lien.

An IRS levy is a technical term used to denote an administrative action by the IRS to actually seize property to satisfy a tax liability. A tax levy gives the government the ability to impose this collection without having to get permission from a court. Typically, the IRS uses a levy to seize two types of property – income and proceeds in a bank account.

The IRS must issue a Notice of Intent to Levy at least thirty days before the IRS can actually impose the levy. However, a Notice of Federal Tax Lien is generally issued after the tax lien arises. Also, while a federal tax lien applies to all of a taxpayer’s property and rights to property, an IRS levy is subject to more specific restrictions. Often times certain property covered by a tax lien may be exempt from an IRS levy. In those instances the IRS must obtain a court judgment in order to take that property.