Dealing with IRS Collections: Liens, Levies, and Seizures
What Are IRS Collections?
When you owe the IRS and fail to pay your tax debt, the IRS uses legal tools to collect what is owed, including any penalties and interest. This process is called IRS collections and includes escalating actions like tax liens, levies, and seizures if earlier attempts to resolve the debt fail.
The IRS often offers options such as payment plans or offers in compromise before resorting to forced collections. However, if these options are ignored or not feasible, liens, levies, and seizures could follow.
Why Does the IRS Use Liens, Levies, and Seizures?
These collection tools allow the IRS to secure and collect unpaid taxes effectively. A tax lien protects the government’s interest by legally claiming your property, while a levy permits the IRS to seize assets such as wages or bank funds. Seizure is the physical confiscation and sale of those assets.
The IRS uses these actions as a last resort to collect significant unpaid tax debts when taxpayers have not cooperated with payment efforts.
Understanding the IRS Collection Process: A Step-by-Step Look
- Notices and Bills: You receive IRS notices explaining what you owe and the deadlines.
- Notice of Intent to Levy: If ignored, the IRS issues a formal notice warning of imminent levy actions.
- Tax Lien Filing: The IRS files a public Notice of Federal Tax Lien to alert creditors.
- Levy Issued: The IRS can legally seize assets such as wages or bank accounts.
- Seizure: If debts remain unpaid, the IRS may physically seize and sell property.
What is a Federal Tax Lien?
A federal tax lien is the government’s legal claim on all your property after you fail to pay taxes owed. It arises after the IRS files a Notice of Federal Tax Lien, which becomes public record and can harm your credit.
- Automatic Creation: The lien attaches by operation of law after the IRS assesses the tax and demand for payment is ignored.
- Public Notice Filing: Alerts other creditors to the government’s claim.
- Secures Priority: IRS gets first claim over your assets, affecting your ability to sell or refinance property.
- Duration: Typically lasts until the tax debt is paid, becomes unenforceable, or is released by the IRS.
Example: If you own a home, a lien means the IRS has a claim on it until your tax debt is cleared, impacting your ability to sell the property.
What is a Levy?
A levy is the IRS’s legal seizure of property to satisfy the tax debt. It allows the IRS to take money directly from your wages, bank accounts, or other assets.
- Types of Levies:
- Wage Levy (Garnishment): Employer withholds part of your pay.
- Bank Levy: IRS takes funds directly from your bank account.
- Property Levy: Seizing vehicles, real estate, or personal possessions.
- Notice Requirement: IRS must provide a “Notice of Intent to Levy” at least 30 days prior to the levy.
Example: The IRS can send a bank levy order to your bank, which must remit funds up to the amount of your tax debt.
What is Seizure?
Seizure is the actual physical taking and often the sale of your property following a levy. The IRS typically sells seized assets at public auction, applying proceeds to your tax debt.
- Physical Possession: The IRS takes control of assets like cars, real estate, or valuable property.
- Advance Notice: The IRS offers notices before seizing major assets.
- Last Resort: Used only after other collection methods fail.
Example: In rare cases, the IRS can seize and auction your home if the tax debt remains unpaid.
Who is Affected by IRS Liens, Levies, and Seizures?
These measures can affect any individual or business with unpaid federal taxes, including income, employment, or excise taxes. The IRS prioritizes larger debts but may act on smaller unpaid amounts if ignored.
How to Avoid IRS Liens, Levies, and Seizures
- File and Pay Taxes Promptly: Meeting deadlines prevents collection actions.
- Communicate with the IRS: Respond to notices and arrange payment plans if you can’t pay in full.
- Explore Relief Programs:
- Installment Agreements for monthly payments.
- Offers in Compromise (OIC) to settle for less.
- Currently Not Collectible Status if you face hardship.
- Automatic Payments: Use IRS Direct Pay or direct debit for timely payments.
What to Do If You Receive a Notice of Intent to Levy or Lien
- Review the notice carefully for amounts and deadlines.
- Verify the debt’s accuracy; dispute errors promptly.
- Contact the IRS to negotiate or request a Collection Due Process (CDP) hearing within 30 days.
- Consider professional help from a tax attorney, CPA, or enrolled agent.
Can You Remove a Tax Lien?
Yes. Once your tax debt, including penalties and interest, is paid, the IRS will issue a Release of Federal Tax Lien. In limited cases, you may qualify for lien discharge or subordination to refinance or sell property.
Common Mistakes and Misconceptions
- Ignoring IRS notices worsens the problem with growing penalties.
- Believing certain assets are completely protected; most assets can be levied.
- Confusing liens with levies; the lien is a claim, the levy is the seizure.
- Not using your rights, such as requesting hearings or appeals.
Frequently Asked Questions (FAQs)
- How long does a federal tax lien last?
Typically 10 years from assessment, but can be extended or released earlier. - Can the IRS take my home?
Yes, after other collection efforts fail, with proper notice. - What if I have joint bank accounts?
The IRS can levy the entire account; non-liable owners must seek remedy afterward. - How do I get a lien released?
Pay your full tax debt or settle via an Offer in Compromise. - Is there a wage levy limit?
Yes, the IRS must leave you enough for basic living expenses.
Comparison Table: Liens vs. Levies vs. Seizures
| Feature | Federal Tax Lien | Levy | Seizure |
|---|---|---|---|
| What it is | Legal claim on property | Legal seizure of assets | Physical confiscation and sale of assets |
| Purpose | Secure government’s interest and priority claim | Collect unpaid taxes directly | Take possession and sell assets to pay debt |
| Action | Public filing; affects credit | Garnishment of wages, bank levies, property seizure | Physical takeover and public sale |
| Timing | Created automatically; filed after notices | After lien filing and notices | Final step after levy |
| Outcome | Creates encumbrance, impacts credit | Debt paid from levied assets | Property sold; proceeds applied to debt |
| Removal | Release after full payment or resolution | Debt satisfied by levy | Debt satisfied by sale proceeds |