Here is How a Tax Levy Differs from a Tax Lien

When it comes to tax debt collection, tax levies and tax liens are the prime staples of the IRS. These are the two commonest methods used by the IRS for getting their money back from the taxpayer. However, many people get confused between the IRS liens and IRS bank levy. Here, we will help you understand how one is different from the other.

Tax Liens

A tax lien arises when a taxpayer fails to pay the taxes even when the IRS makes an official demand. You can consider lien to be a secret lien as there is no public record of it. However, your property, as well as the right to property, will have the lien attached as of the date of the assessment of taxes. This includes personal and real estate property. Failure to pay taxes can lead to serious consequences. For example, the assessment of your taxes happened on 1st July. You give the property as a gift to the third party on 2nd July. In such cases, the tax lien will continue to attach itself to the property.

This will happen even if you didn’t have any knowledge of the tax lien existence. It will also not depend on whether the person who got the property had any idea that the tax lien had arisen. This often happens in cases of divorces. One spouse who owes IRS transfers the property ownership to the other spouse as a way of marital dissolution. And even though none of them has any idea of the tax lien, the property will have the tax lien. The IRS can seize and sell this property for collecting the owed amount.

However, there are some third parties with protection from the tax lien. These are the people who have a fair price for the received property. Take an example. Your home had a secret IRS tax lien. You sold the property at fair market value to a third party. Now that someone else has the ownership of the property, the IRS can’t go after it. But, for this rule to work, the person who got the home should have paid the exact market value, not less or more.

When tax attorneys are referring to a tax lien, they mean the ‘Notice of Federal Tax Lien” or NTFL. This is a document filed in a public place like the Secretary of State or the County Recorder’s Office. You can consider this as a notice to let the world know that you owe taxes. The Notice of Federal Tax Lien usually contains a list of the taxes that you owe, the years for which you owe the taxes, and the type of taxes that you owe. It will also contain the date of the assessment of the taxes.

Now, it is important to note that NTFL is a static document. So, even if you pay some of your tax liabilities, the notice will continue to show the same due amount. Similarly, if there are any new penalties or interest, the notice won’t be updated for displaying the additional amount. Therefore, the amount mentioned in the NTFL might not be the correct amount of your tax liabilities.

Different credit reporting agencies will be picking up the NTFL that will lead to serious credit problems for you. If you have a property and you try to sell it, the IRS will get the equity in your property. However, in a tax lien, no money will be taken out of your bank account.

Tax Levies

The general public doesn’t know about your IRS bank levies. So, it won’t be preventing you from selling your property. Also, it won’t be affecting your credit rating. Also, the bank won’t be sending your funds to the IRS immediately. According to the IRS code section 6332(c), the bank has to hold onto your funds for 21 days.

When the bank gets a receipt of the IRS bank levy, they will send you a notice. When the bank receives the notice, the 21 days clock starts ticking. However, it may take the bank a few days to send you the notice. You need to have an exact idea of when your 21-day period is ending. It will give you time to negotiate a plan with the Internal Revenue Service. You can use this time to get the bank levies released before the bank sends your money to the IRS. Now, getting the IRS to release the IRS bank levy won’t be easy. You will need the help of an experienced tax attorney. Your overall situation will also determine the IRS’s decision. The following factors come into play:

  • The amount of funds in the bank
  • The value of other assets
  • Total tax bill
  • Amount of income and expenses
  • Your cooperation with the IRS through by giving a response to their inquiries

The IRS won’t be sending you a rapid notification about the bank levies. In fact, according to the IRS’ internal operating procedures known as Internal Revenue Manual, all the employees are specifically instructed to delay sending the IRS bank levy copy to the taxpayer.

You can consider the bank levies as a one-shot. From the minute after the release of the notice for the IRS bank levy, it attaches to the funds present in your account. Other tax levies like on wages, commissions, or similar payments are continuing levies. For example, you have a tax levy on your wages. In this case, your employer will be sending a portion of your paycheck to the IRS until you pay the entire tax liability, or the IRS agrees to release the tax levy.

If the IRS has sent a tax levy to your employer, they will have to send the major portion of your paycheck to the IRS. For your expenses, the IRS will leave a small amount of your monthly income. There will be no 21-day holding period. From your first paycheck, after the employer has gotten the tax levy, it will be effective. Even if you get the notice of the IRS serving a tax levy on your wages, there will be no holding period. This makes engaging with tax counsel difficult. You won’t be able to make any negotiations with the IRS before the next paycheck. And once the IRS gets the money from your employer or the bank, there is no way you are getting it back.

Tax liens and IRS bank levy are both sensitive situations that require immediate action and right counsel. You have to take the help of professionals for this. Platinum Tax Defenders is a tax resolution service that can help you find a way out of tax liens as well as bank levies. Our tax relief experts will ensure that you are able to negotiate with the IRS and get the liens and IRS bank levies released.

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