If you owe back taxes, you may have heard the terms “tax levy” and “tax lien.” But what exactly are these terms, and is there a difference between them? In this blog post, we’ll explain the difference between a federal tax levy and a federal tax lien. We’ll also touch on how to get rid of a tax lien and how to get a federal tax lien subordinated. By the end of this post, you should have a better understanding of these terms and what they mean for your tax situation.
What Is a Levy?
If you owe taxes to the IRS, there is a legal process through which they can collect the money. This process is called a levy, and it is different from a lien in that a lien is a claim against your property. A tax levy, on the other hand, actually seizes your property – this means that the IRS can take your wages, bank accounts, retirement account, and other assets. This difference is because tax levies are typically used as a last resort.
Tax levies are only used if other methods of collecting unpaid taxes haven’t been successful, for example, if you have failed to file tax returns or pay your tax debt in full.
If you have questions about whether or not you are liable for unpaid taxes or how best to deal with them, don’t hesitate to contact an experienced tax professional: https://calendly.com/jola-biegaj We will be able to help walk you through all of your options and provide guidance as needed.
What Is a Tax Lien?
A federal lien is a claim of legal right against a real or personal property that secures payment of a tax debt. A lienholder has the right to take possession of the property if the debt is not paid.
There are many reasons why someone might file a lien. For example, if you are an attorney who has filed suit on behalf of your client and they owe you money from that litigation, you may be able to file a tax lien against their assets to get those funds paid back to you. Similarly, a county can place a lien on a house for unpaid property tax.
The important thing to remember is that filing a lien does not mean that the debt will automatically be resolved – it simply gives some extra leverage should the debtor decide they want to fight instead of pay up. But having this kind of leverage can often make resolving the debt much easier than it would be otherwise.
The Difference Between a Tax Levy and a Tax Lien
When you owe taxes, the government may want to ensure you pay through a tax levy or tax lien. A levy is a legal seizure of your property to satisfy an IRS tax debt, which means that the government can take your property (including cash and assets such as real estate) without first getting judicial approval. A lien is a claim against your property to secure payment of taxes, which means that the creditor has filed a document stating their right to seize your assets in order to collect on their debt.
A levy is a more drastic method of collecting taxes since the government takes your property without first getting judicial approval. This can be risky for you, as the government has the power to take your property without any warning or prior notice. A lien is less extreme than a levy and allows the creditor to seize only certain assets (such as bank accounts and real estate) rather than all of your property. Lien claims are also filed with the court, which gives you some degree of protection from seizure by creditors.
How to Remove a Tax Lien
The IRS is not without flaws and may make mistakes. There are a few perfectly legal methods to appeal for the removal of a tax lien if you are aware of where to begin.
The IRS will rescind a Notice of Federal Tax Lien if the evidence demonstrates that their initial lien was without merit. If you pursue tax resolution, a lien can be removed through the appeals process if:
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The outstanding tax liability has been discharged in its entirety
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The tax lien was filed in error
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The IRS made an error in your tax return.
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The IRS failed to follow proper procedure.
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The lien was filed when you were going through bankruptcy.
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You were not given a chance to dispute the assessed tax debt amount.
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Your spouse should be held accountable for the tax lien
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You want to review debt-collection options
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The 10-year statute of limitations for collecting tax debt has expired.
The notice of the lien provides you with the opportunity to request a Collection Due Process hearing with the Office of Appeals within 30 days of the lien being filed, or by the date specified in the notice.
IRS tax liens can affect both small business owners and homeowners. A tax lien can place significant financial burden on a business, and can also impact homeowners who may have difficulty refinancing their homes because of the debt burden imposed by the tax lien. Fortunately, there are several ways to remove an IRS tax lien without having to go through the court system or pay expensive legal fees.
How to Get a Federal Tax Lien Released
If your tax debt is paid in full, but you get a tax lien, it’s important to know how to get that lien released. The process is relatively simple and can be completed within 30 days of paying your taxes.
To request the withdrawal of your IRS tax lien, you must submit a form titled “Request for Withdrawal of Federal Tax Lien” (Form 4506). You can find this form online at IRS.gov or at any IRS office. Once you’ve submitted this form, the IRS will review your request and decide whether to withdraw your federal tax lien from public record.
If the IRS approves your request, your tax lien will be withdrawn from public record and it will no longer damage your credit score. Additionally, once a federal tax lien is released, it’s removed from your credit report.
Release and Partial Release of Tax Liens from the IRS
A taxpayer’s topmost priority is to get the IRS to rescind the lien entirely, closely followed by obtaining a tax lien release from the IRS. Although a tax lien release will still be visible on a credit report, it will be designated as paid and won’t be as damaging. The
The IRS will not be able to seize your real or personal property.
The IRS generally will not agree to a tax lien release unless there is good cause.
If you want to sell an asset to cover your tax liability, the IRS may grant a release of lien or partial release of lien.
A partial tax lien release will only affect a designated piece of property, but it can be consequential in staving off the restriction of an asset. A popular circumstances where a partial release of tax lien is of advantage is when the taxpayer wants to short-sale their residence in order to obtain financial flexibility.
The IRS will evaluate each request for a partial release of tax lien on a case-by-case basis, so it is important to be prepared to submit detailed documentation when making such a request.
Withdrawal of Federal Tax Liens
Taxpayers can petition the IRS for withdrawal of a lien. If possible, it is advantageous to have the tax lien withdrawn, rather than mere release or subordination.
The lien can be removed from your credit report if it is withdrawn, which should not negatively impact your credit score.
The IRS will only remit liens under specific conditions; the negative consequences of a tax lien are designed to “encourage” taxpayer compliance. Tax liens can be withdrawn if the taxpayer satisfies the full extent of the tax liability and certain compliance requirements. Taxpayers who want a withdrawal of a tax lien must have filed all required tax returns (including any informational returns) and must also have made all estimated tax payments and tax withholdings.
By entering into a direct debit installment agreement with the IRS, taxpayers can have a lien withdrawn. With this agreement, the taxpayer agrees to have a certain amount monthly taken directly out of their bank account.
This executes a two-fold purpose for the IRS; first, it guarantees monthly payments if the taxpayer has the means to do so, and second, it increases the likelihood of compliance. Form 433-D not only allows for direct debit installment agreements, but also provides a ready-made levy source in the event of default. If the taxpayer can demonstrate that the liens were erroneously filed, they will be released; however, the IRS does not automatically retract liens and the taxpayer must submit a lien withdrawal request. Lien requests can be made to the IRS by completing Form 12277.
To locate the IRS Form 433-D, please go here: http://www.irs.gov/pub/irs-pdf/f433d.pdf
Form 12277 can be found through this link: http://www.irs.gov/pub/irs-pdf/f12277.pdf
Subordination of Tax Lien as an Alternative to Release.
If the IRS does not agree to a tax lien withdrawal or release, a lien subordination may be an option. Subordinations are typically granted when a taxpayer is trying to borrow against an asset to pay the IRS, while keeping the possession of the assets. Subordinations lower the IRS’s creditor priority in comparison to another creditor, such as a bank. This is often a requirement for a lender to agree to loan money on an asset that a federal tax lien has already been placed on. Creditor priority means that if anything happened to the asset, the IRS would have first claim on it over the bank.
The IRS usually agrees to subordination rather than release of lien in some cases because they have a stake in the property. This depends on the taxpayer’s situation, though. Form 14134 is used to request for lien subordinations from the IRS.
Avoiding an IRS Lien in the First Place
The most straightforward way to circumvent federal tax liens is to proactively avoid them. Adhering to your federal tax responsibilities is a foolproof method to sidestep a tax lien. If you are not in full compliance, taking early action to develop a resolution is an excellent way to prevent a lien.
The easiest way to avoid a lien is to proactively manage your IRS tax obligation by getting on a payment plan or making arrangements to pay the liability in full.
Tax liens are a burden on IRS resources, and the agency will prioritize accounts that are making an effort to resolve their tax liability. According to the IRS, tax liens are for taxpayers who are aware of their outstanding balance but take no action to pay it off. This prevents innocent taxpayers from being unduly burdened by the liens.
Simple contact with the IRS may help you avoid a tax lien.
The IRS typically does not bother to place a lien on taxpayers who owe smaller amounts. Under the IRS Fresh Start Program, the IRS raised the threshold for placing a federal tax lien on an account from $5,000 to $10,000.
The IRS will not place a tax lien on you if you owe less than $10,000, but it is not going to bother if you owe slightly more than $10,000. You may want to make a partial payment to the IRS so that you are below the threshold.
If a taxpayer owes less than $25,000, an installment agreement may prevent a tax lien from being filed.
The individual has avoided tax liens for their clients who have balances of up to $50,000 by agreeing to have their clients set up on direct debit. It is advisable to keep oneself under this threshold, as the IRS is likely to take a harder look at accounts with balances over $50,000.
The Internal Revenue Service (IRS) provides information on understanding a federal tax lien. A federal tax lien is the government’s legal claim against your property when you fail to pay a tax debt. The lien protects the government’s interest in your property and gives the IRS the legal right to seize and sell your property to satisfy the debt.
The IRS website provides details about making payments: http://www.irs.gov/Businesses/Small-Businesses-%26-Self-Employed/Understanding-a-Federal-Tax-Lien
The IRS Fresh Start program offers information on how to deal with federal tax liens. http://www.irs.gov/Businesses/Small-Businesses-%26-Self-Employed/Fresh-Start-Notice-of-Federal-Tax-Liens This program can be found on the IRS website.
All in All
There are a few things to remember when it comes to levies and liens. First, a levy is a legal seizure of your property to satisfy a tax debt, while a lien is simply a claim against your property. Second, you can usually remove a tax lien through the court system or by taking some other action, such as paying off the debt in full. Finally, if you have paid your taxes and met certain other conditions, you may be able to request a withdrawal of a federal tax lien.
If you’re seeking tax relief from an IRS lien, the best thing to do is come talk to me. This is a delicate issue that is best handled by an experienced professional. In most tax lien cases, you don’t need a tax attorney to remove a federal tax lien. At Aristos Consulting, we have a proven track record of successfully having liens released for our clients and providing other forms of IRS tax lien help. We can help you decide the best course of action to take in order to resolve your lien and get you back on your feet. Having your lien released is the first step, but we can help you avoid getting into a situation where you’re susceptible to a lien in the first place.
If you want to get rid of a lien against your property and need to speak to a tax practitioner who is an expert, schedule a free consultation: https://calendly.com/jola-biegaj
