Many people use the terms “lien” and “levy” interchangeably but they are two very different IRS enforcement and collection tools. Taxpayers should be aware of the differences.

When a tax liability is unpaid, the IRS is permitted to file a federal tax lien, which is the government’s way of securing its interest in a taxpayer’s property. When properly filed, a federal tax lien attaches to all property and rights to property, whether real or personal, to the extent of the taxpayer’s interest in the property.

The amount of the lien should equal the amount of taxes, interest, and penalties that the taxpayer owes for the period in question. The IRS does make mistakes when filing liens, so it is important to make sure all proper procedures were followed, including that the taxpayer’s name and amount is correctly identified on the lien.

Unfortunately, a federal tax lien is a public document and is easily accessed on county websites, meaning that other people will know when a federal tax lien has been filed against you. A taxpayer’s social security number should not be visible on publicly filed tax liens. If your social security number is visible on a federal tax lien, you have the right to request that it be removed from public records.

Federal tax liens are reported to the credit bureaus, which can negatively affect credit scores and hinder the ability to borrow funds.

Generally, a tax lien is not released until the IRS either receives full payment of the liability or the collection statute has expired. However, in certain circumstances, taxpayers can apply to have a tax lien withdrawn, subordinated or discharged without the liability being fully satisfied.

A tax levy is very different from a tax lien. When the IRS issues a tax levy they are forcibly seizing or taking property from the taxpayer. It is quite common for the IRS to levy bank accounts, salaries, wages, and other rights to payment.

Bank levies are usually one-time levies, meaning that the IRS can only take the amount of money that is in the account at the time the levy is issued, but not in excess of the tax liability. The bank is required to hold the funds for 21 calendar days before sending the money to the IRS. This holding period allows the account owner time to get the levy released or work out a payment alternative with the IRS.

Continuing levies, such as levies on wages or salaries, are not one-time levies. This means that the levy remains in force until it is released by the IRS.

In most cases, the IRS is required to send notice and demand of its intent to levy on the taxpayer. A letter titled, Final Notice of Intent to Levy and Notice of Your Right to a Hearing should be sent to the taxpayer 30 days prior to levy action. This letter usually comes certified so it is best to open all IRS mail, even though it may be intimidating. If the taxpayer timely files for a Collection Due Process hearing, the IRS cannot issue levies until the case has been processed through Appeals.

What happens if I don’t pay my taxes?

IRS has more power than any other creditor. If you don’t pay the taxes you owe IRS may levy (seize) the money in your bank accounts, brokerage accounts and yes, even your retirement accounts. IRS can also send a Notice of Levy to your employer and seize your wages. Under the Federal Payment Levy Program, IRS can levy up to 15% of your Social Security benefits. IRS can also take your house, even if it is homestead. Don’t wait to let this happen. If you receive a Notice of Intent to Levy with Right to a Collection Due Process Hearing The Pless Law Firm, P.A. can file for the hearing on your behalf and prevent enforced collection action. But you must act quickly – you only have 30 days from the date of the Notice of Intent to Levy to file for the Collection Due Process Hearing and stop IRS from taking enforced collection action against you.

I received a Form 1099-C. What is this for?

If you received a Form 1099-C it means you had some type of debt cancelled or forgiven. This typically happens when a credit card company cancels a portion of your debt or if your car has been repossessed and the loan was not fully repaid. You may also receive a Form 1099-C if your house was foreclosed. The company that forgave or cancelled your debt is required to send a Form 1099-C to you because the tax law says the amount of the forgiven or cancelled debt is taxable to you. The reason behind this principle is that when a borrower receives loan proceeds he or she does not include the amount in gross income because of the corresponding obligation to repay the loan. However, if the lender subsequently cancels or forgives the loan, the amount of the forgiven liability must be included in the borrower’s gross income and is subject to income tax. This type of income is referred to as cancellation of indebtedness income, or COD income. Fortunately, there are several exceptions to this general rule. If you qualify for one of the exceptions you may not have to pay tax on the COD income.