If a taxpayer owes additional tax but has been unable to pay, the IRS has several courses of actions they can take to collect funds owed to them. The three most common are liens, levies, and garnishments. Taxpayers may confuse these, but they are distinct in nature.
Before we get started, something important to note: Before seizing property or levying a taxpayer’s funds, the IRS must send a notice at least 30 days prior to allow the taxpayer time to take action and pay the amount due or enter into a payment agreement with the IRS. If the taxpayer does not make an attempt to resolve the debt, the IRS can continue with the below actions.
Liens
A lien is when the IRS makes a legal claim on the taxpayer’s property in order to satisfy a debt. When a lien has been placed on a property, such as real estate, the IRS is essentially securing that property, meaning that the property cannot be bought, sold, or refinanced until the debt owed to the IRS has been paid, settled, or expired. Liens can also be placed on other assets, such as cars, jewelry, collectibles like artwork and antiques, or any other property the IRS may deem as valuable as an attempt to collect the debt owed to them. Taxpayers may receive a notice from the IRS letting them know that a lien is being placed on their assets in the hopes that it will spur them to take action to resolve the debt before more drastic measures are taken. Keep in mind that once a lien is placed on a taxpayer’s account, the lien can attach to any property the taxpayer may obtain in the future until the underlying tax debt is satisfied or the statute of limitations on collecting the tax due has expired. Generally, the IRS has ten years from the date the tax is assessed to collect the tax due.
Seizures
Once a legal claim is placed on assets owned by the taxpayer, there are several different actions the IRS can take to seize these assets if the debt continues to be left unsatisfied. One of these actions is the actual seizure of physical assets. However, this type of action is typically rare; levies and garnishments (which are types of seizures) are much more common.
Levies
A levy is typically a one-time action in which the IRS can take a specified amount of money from a taxpayer’s income tax refund or their bank accounts. However, if the taxpayer still owes money after a levy, the IRS can continue to issue levies until the balance is paid in full. Generally, the IRS will issue at least one notice prior to each levy so the taxpayer has time to take any necessary action. One action that can stop a levy from taking place is entering into a payment plan, such as an
installment agreement.
Garnishments
A garnishment is a type of levy and the most common way the IRS will collect any chronically delinquent debts that are owed to them. This is typically done by seizing a portion of a taxpayer’s wages or even a taxpayer’s retirement account, such as their IRA or pension.
This all might sound a little confusing – and possibly a little bit scary – but at TaxAudit, we exist to help taxpayers understand and resolve these exact issues.
If you have received a notice from the IRS – whether it is an initial IRS notice or something as severe as an intent to levy – and aren’t sure where to start, our Audit Defense and Tax Debt Relief teams would love to help you! Our tax professionals are experts in everything from audit representation to tax levy and lien release and can advise you on the best next steps to take in order to ensure you pay no more tax than what you rightfully owe. For more information, visit our
website or contact our Customer Service team at 800.922.8348 to get started!