People often use the terms “lien” and “levy” interchangeably. That’s a mistake. As we’ve discussed in previous posts, they are two different things.
The IRS defines a federal tax lien as “the government’s legal claim against your property when you neglect or fail to pay a tax debt.” While liens are often associated with real estate, they can be placed on other types of personal and business property and assets. Small business owners with sole proprietorships and those who are self-employed are at particular risk since their business and personal property and assets can be intertwined.
If the IRS places a lien on a taxpayer’s assets, it sends them a Notice and Demand for Payment). It also files a public Notice of Federal Tax Lien to notify creditors of the lien. It’s only when a taxpayer fails to address an IRS lien that it can become a levy, which involves actually taking their property that’s already held with a lien to pay their tax debt.
Options for dealing with an IRS lien
The best way for a taxpayer to get rid of a lien and keep it from turning into a levy and a seizure of their property is to pay their debt. Of course, not everyone has or can come up with the funds necessary to pay what they owe the IRS. There are other options that may be possible. These include:
Certificate of Discharge: If a person qualifies for a discharge (based on IRS requirements), a lien can be removed from a specific property, with the proceeds going to the IRS.
Certificate of Subordination: The IRS will sometimes “subordinate” their claim on a property to other creditors if it means there’s a better chance the debt will be paid – for example by obtaining or refinancing a mortgage.
If a taxpayer doesn’t attempt to or isn’t successful at getting a lien released, there are a number of additional steps before the IRS can proceed to a levy. These include a Final Notice of Intent to Levy.
The sooner a taxpayer deals with IRS notification of unpaid taxes – whether they believe the notices are accurate or not – the better their chances are of avoiding, liens, levies and other consequences. Getting early and experienced legal guidance can make all the difference.