Untangling Tax Terms: The Distinction Between Lien and Levy


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Tackling taxes can be overwhelming, and when back tax debt enters the equation, complexities and stress can intensify. The terms “lien” and “levy” often surface in discussions about unpaid taxes, each carrying specific meanings and consequences in the realm of taxation. It’s crucial to grasp these differences for anyone seeking relief from tax-related challenges.

Let’s demystify these terms and delve into their implications.

Important Note: If you’re receiving threatening letters from the IRS or have a “Notice of Federal Tax Lien,” reach out immediately to explore potential tax relief options.

What Is a Tax Lien?

A tax lien is a legal claim against a taxpayer’s property or assets, acting as collateral for unpaid tax debt. Unlike an immediate seizure, it serves as a legal encumbrance, notifying creditors and potential buyers of the taxpayer’s debt to the government. Key aspects of tax liens include:

  • Filing a Tax Lien: When tax debt remains unpaid, the IRS or state taxing authority may file a Notice of Federal Tax Lien, making the debt a matter of public record.
  • Impact on Credit Score: A tax lien can significantly impact the taxpayer’s credit score, making it challenging to secure loans or credit with potential increases in interest rates.
  • Asset Encumbrance: While assets aren’t immediately seized, they become encumbered, giving the IRS or state a claim on proceeds if the taxpayer tries to sell them.
  • Priority Status: Tax liens often take precedence over other creditors, giving the government priority rights to the taxpayer’s assets.
  • Lien Release: Resolving a lien promptly, either through full payment or an alternative payment plan, is essential to regain control over assets and credit.

What Is a Tax Levy?

A tax levy involves the actual seizure of a taxpayer’s property or assets to satisfy unpaid tax debt, representing a more aggressive collection action. Key aspects of tax levies include:

  • Issuance of Levy: A legal action taken by the IRS or state to collect unpaid taxes, resulting in the seizure of bank accounts, wages, vehicles, real estate, or other assets.
  • Bank Levy: Commonly, a bank levy freezes and eventually withdraws funds from the taxpayer’s account to cover the unpaid tax debt.
  • Wage Garnishment: A wage levy involves continuous deductions from the taxpayer’s wages to satisfy the tax debt, impacting their income.
  • Asset Seizure: In extreme cases, the IRS or state can seize and auction off assets, including real estate and vehicles.
  • Levy Release: Resolving the tax debt is crucial to releasing a levy, whether through full payment, a payment plan, filing delinquent tax returns, or demonstrating severe financial hardship.

If you’re facing tax liens, levies, or other tax-related challenges, reach out to Back Tax Expert today for assistance in resolving your tax issues and achieving financial stability.

Avoiding Tax Liens and Levies

Proactive Steps to Prevent Tax Challenges:

  1. Timely and Accurate Filings: File tax returns on time with accuracy to avoid triggering audits and accumulating tax debt.
  2. Regularly Review Tax Returns: Periodically review tax returns for errors, discrepancies, or potential red flags that might attract IRS scrutiny.
  3. Pay Taxes Promptly: Pay taxes on time and consider options like installment agreements or an offer in compromise if unable to pay in full.

Seek Professional Guidance: Consult tax relief professionals for assistance, from negotiating with taxing authorities to developing strategies for lien and levy resolution. If you have back tax debt, contact Back Tax Expert at 703-847-0757 for a free consultation today.