What if the dreaded scenario happens? What if you get a piece of mail from the IRS, and it has a scary word written in the communication – something that begins with ‘L’….such as the word ‘Lien’ or ‘Levy’? What happens then?
In this blog we’ll be looking into those alarming words – what they mean to the IRS, what they mean to you, and what to do about them.
First of all, an important point: look carefully at the letter you’ve received. There is a big difference between a ‘Lien’ and a ‘Levy’. If it says ‘Lien’, take a deep breath and calm down. If it says ‘Levy’ take a deep breath and sit down. In either case, read on — here’s the breakdown:
Notice of a Federal Tax Lien – Overview
This communication is telling you about the government’s legal right to ‘encumber’ property to secure the ultimate payment of a tax. In other words, the IRS places a lien in order to protect their own interest and to stop other creditors from getting their hands on your money before you pay the IRS. The letter tells you that they have already placed a Lien against you, but it is not telling you that they are in the process of collecting from you; instead it is letting you know that they have the potential to collect from you. The only real danger to you at this point is the hit that your credit rating will take. When you resolve the payment, you may obtain a ‘Certificate of Release of Federal Tax Lien’ which then will discharge the Lien.
Notice of Intent to Levy – Overview
In IRS terms, “levy” means that they are taking an administrative action (that is, they don’t have to go to court to do it) to seize property to satisfy a tax liability (ahem, the taxes that you haven’t paid.) There is a big difference between a Levy and a Lien. With a Notice of Intent to Levy, the IRS is telling you that they intend to seize property in the near future. That document is issued at least thirty days prior to the Levy itself. The Levy is the actual act of seizure of the property. Note that this is an entirely legal seizure of your property to satisfy a tax debt, and also note that the ‘property’ can be things such as your car, your boat or your house.
In the next blog we’ll dig deeper into the differences between a Tax Lien and Levy, discuss how to handle them, and what your options may be.
If you would like your questions answered by a qualified tax professional, contact Litchfield County tax attorney Martha Miller at 860-435-4666.