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Tax Lien v Tax Levy : What’s the Difference?

So you just received a notice from the IRS informing you that they intend to place a lien on you or levy your accounts. Naturally these terms are intimidating in and of themselves but oftentimes, taxpayers don’t really know what they mean. Allow us to take a moment to clarify this for you and explain the difference between a Tax Lien and a Tax Levy once and for all so that you may be better
house with tax lien
equipped to play the hand the IRS has just dealt you.

Tax Lien

A tax lien is the government’s legal claim against your property when you neglect or fail to pay a tax debt. It protects the government’s interest in all of your property, including real estate, personal property, and financial assets. Typically, however, tax liens most commonly impact real estate. The tax lien is applied to any property you may own when the lien is filed and any property you may purchase in the future.

Essentially, a tax lien can be thought of as a document that the IRS files – the Notice of Federal Tax Lien – stating that you owe the government back taxes. The lien is filed in a public place such as the County Recorder’s Office or the Secretary of State and is used to alert any potential creditors of your tax debt. Having a tax lien placed against you can do severe damage to your credit rating, making it very difficult to be approved for a mortgage, auto loan, business loan, etc.

Furthermore, any equity you already have in the home now belongs to the IRS. So, for instance, if you have $25,000 in equity when you go to sell your home, at the closing that money would go to the U.S. government, rather than to you.

Tax Levy

A tax levy is a legal seizure of your property (liquid assets typically) to satisfy a tax debt. If the IRS serves a tax levy on your bank then it is required by law to send all of your money to the IRS. Additionally, if they send one to your employer, they are required to send your paychecks to the IRS minus a very small amount which is exempt.

Tax levies differ from tax liens in that a lien is a legal claim against your property to secure payment of your tax debt, while a levy actually takes your property to satisfy the tax debt.

Tax levies, however, are not available to the general public like tax liens are and in and of themselves, tax levies will not affect your credit rating or prevent you from selling your property

So now what?

The IRS only takes these extreme measures after they have exhausted every other possible way of retrieving the debt that is owed to them and only after several failed attempts to get your attention (e.g. sending you several notices). Optimally, the best solution is to resolve your tax issue as soon as possible, thus never allowing it to reach these extreme points. Unfortunately, we do not all live in an ideal world and situations do arise which make it difficult for some to nip these matters in the bud. If you should find yourself in such an unfortunate circumstance it is important to seek professional help immediately so that they may help mitigate your losses and salvage any damage to your credit report.

Venar Ayar, Esq.

Venar Ayar, Esq.

Attorney-at-Law, Master of Laws in Taxation
Principal and founder, Ayar Law

Venar is an award-winning tax attorney ranked as a Top Lawyer in the field of Tax Law. Mr. Ayar has a Master of Laws in Taxation – the highest degree available in tax, held by only a small number of the country’s attorneys.