The words IRS lien or IRS levy are enough to strike fear into the hearts of anyone who owes back taxes. They are right to be concerned. Liens and levies are two of the strongest measures the IRS has to enforce tax compliance. They allow the IRS to lay claim to virtually any property you own and seize it, or a good portion of its value, to satisfy back taxes, penalties and interest.
However, the IRS is a highly bureaucratic institution that runs on a number of rules and regulations. These policies require it to go through specific procedures before it can issue a lien or levy. For taxpayers worried about liens and levies, it is important to understand the process that leads to their issuance and how they can be lifted.
An experienced CPA can help you resolve your tax problems and put together a tax plan in order to avoid future tax issues.
What Are Liens and Levies
Many people think of liens and levies as the same thing, but they are two legally distinct actions. Liens are considered the less severe act because they do not involve the seizure of assets, while levies are the process by which the IRS takes property to satisfy tax debt.
An IRS lien, in essence, puts a hold on your property. Because IRS liens are broad, their issuance usually applies to most of a person’s assets, if not all of them. The lien does not give the IRS the right to seize property. Instead, it declares that the IRS has a right to a share of that property, which is equal to the amount the taxpayer owes the IRS.
For example, a homeowner who owes money to the IRS may discover that the taxing authority has placed a lien on the property. As a result of the lien, the homeowner is barred from selling the home until the debt is satisfied. The same may apply to vehicles, investment accounts and even personal valuables, such as jewelry or precious metals.
A levy gives the IRS the right to seize the property. Levies are most common for bank accounts, where the IRS can simply seize the funds and apply them to the debt. However, levies can also apply to real property, which can be seized and resold to satisfy the outstanding balance.
How Liens and Levies Come About
To be subject to a lien or levy, a taxpayer must have past due taxes. If you have taxes in arrears, the easiest way to prevent the issuance of a lien or levy is the enter into a settlement agreement with the IRS. Once a settlement, such as a payment plan or offer in compromise, goes into effect, you are safe from liens and levies as long as you abide by the terms.
Before a lien or levy is issued, the IRS must first present the taxpayer with a bill, which the taxpayer then fails to address. Because of this, liens are usually expected by the taxpayer. Even if you cannot pay the entire tax bill, an IRS lien can generally be prevented by entering into a settlement agreement with the IRS.
A tax levy usually occurs after a tax lien has been issued. Once the lien is in place, the IRS sends notices to the taxpayer warning of an impending tax levy. This is the taxpayer’s opportunity to settle the matter before a levy is issued.
How to Remove Tax Liens and Levies
Tax liens can be removed in several ways. The most direct is to pay the outstanding debt. Often, it is possible to get some of the penalties and interest waived. In cases of financial hardship, some of the tax may also be eligible for reduction through an offer in compromise.
It may also be possible to subordinate the IRS lien, which grants other creditors priority over the IRS. The IRS may agree to this, for example, if it allows you to obtain a loan to pay off the tax debt.
Tax levies can also be removed by paying the outstanding debt or working out a settlement agreement with the IRS, such as an installment agreement. They can also be removed if the taxpayer can prove the levy is the cause of extreme financial hardship. In addition, if the taxpayer can demonstrate that releasing the levy makes it easier to pay the tax debt, the IRS may agree to remove the levy.
In cases where the property levied is worth more than the tax, the levy may be released if its withdrawal does not jeopardize the IRS’s ability to collect the debt.
No one wants to be subject to an IRS lien or levy. Unlike private creditors, the IRS can issue these actions without the approval of a court. However, it must follow its own strict guidelines, which requires notification to any taxpayer in danger of these collection actions. These notifications provide an opportunity to settle the tax debt before liens or levies are brought.
If you are struggling with IRS debt, liens or levies, there are options to settle the matter before your property is seized. A Certified Public Accountant (CPA) can do more than save you money by filing your taxes with the maximum deductions. They are also licensed to represent taxpayers with the IRS. CPAs can negotiate to lower penalties, interest and taxes on your behalf, as well as arrange the removal or liens or levies.
If IRS collections have you worried, Tax Avenger Canton MI can help. We are and experienced CPA Firm specialized in tax problem resolution. With 20 years’ experience, we will help you reduce your tax liabilities and put together a tax plan for you to ensure that you will not have any future problems with the IRS.
We offer full-service tax solutions for individuals and businesses including tax preparation, accounting services, business startup, payroll services, and more. Call today for a Free Consultation!