Liens and levies are tools the IRS uses to collect back taxes. Here’s more about each one — and how to avoid them both.
If you have a tax debt and haven’t made arrangements with the IRS to pay your tax balance, the IRS sends a series of notices to try to collect the back taxes and any penalties & fees incurred. The IRS will then start its enforced collection actions, using the many tools it has at its disposal, including tax liens and levies.
How the IRS issues levies
The IRS can issue a levy to seize (take) your income and assets. The process follows several steps.
First, the IRS must provide you with:
- Notice and demand for payment
- Notice of intent to levy
- Notice of your right to a Collection Due Process hearing
Most of the time, the IRS sends five letters, starting about six weeks after you file a return. The five letters are often called the collection “notice stream” (notice numbers CP14, CP501, CP503, CP504, and L1058/LT11).
If you receive the last notice and don’t pay the balance or make other arrangements to pay, the IRS can levy your income and assets, garnish your wages and take money in your bank accounts. It can get frighteningly restrictive very quickly.
How to avoid a levy
If you owe the taxes, one way to avoid a levy – or remove one – is to reach an agreement with the IRS to pay your balance. This means you’ll need to analyze your financial situation and your ability to pay the IRS. This is why we’re here, and we can help with that process in a very streamlined manner. With your permission, IRS Tax Freedom can investigate your tax debt situation and discern what information the IRS has on you (and the likely courses of action they might take, including liens and levies).
One common solution is an extension of time to pay the full balance. Extensions can give you up to 120 days to pay the balance and avoid a levy.
If you can’t pay with an extension, the IRS offers several types of monthly payment plans, called IRS installment agreements. If you can’t pay anything, you may consider requesting currently not collectible status. This status classifies you as temporarily unable to pay. Requests for both of these agreements suspend levy actions.
All of these options depend on your current financial situation. If you engage us to help you, we’ll present you with all your options and guide you to making the best choice for your specific circumstances.
Once the IRS accepts your installment agreement, the IRS won’t issue a levy unless you default on the agreement. If the IRS places you in currently not collectible status, the IRS won’t levy your assets. But the IRS can remove the currently not collectible status in the future if it determines that you can pay the tax balance.
How the IRS issues liens
When you owe back taxes, the IRS can issue a federal tax lien that gives the IRS a legal claim to your property – and it can be many different kinds of properties. A Notice of Federal Tax Lien may also be filed at your local courthouse and is a public record. A recorded federal tax lien establishes the government’s right to your assets over other creditors. Unfortunately, it also puts your situation out there for public viewing.
The IRS waits to record most tax liens until after it has sent all five notices in the collection notice stream and hasn’t received payment.
You’ll want to avoid a Notice of Federal Tax Lien. Liens can affect your ability to attract new business clients, secure and maintain credit, and obtain employment. They can be very restrictive in how they can hamper you and your life.
How to avoid a lien
Avoiding a tax lien filing is more complicated than avoiding a levy. The IRS can file a tax lien even if you have an agreement to pay the IRS. IRS business rules say that a tax lien won’t be filed if you owe less than $10,000. But the IRS reserves the right to file a lien to protect its interests. For example, the IRS might file a lien in the case of a pending bankruptcy or if the IRS thinks you’re getting rid of assets to avoid payment.
Even if you owe more than $10,000, you can still avoid a federal tax lien filing. If you can’t pay the tax right away, the best ways to avoid a lien are to request an extension of time to pay of up to 120 days or get a streamlined installment agreement to pay the full balance.
Streamlined installment agreements require you to pay the full balance within six years or before the collection statute of limitations expires, whichever is sooner. If your balance is less than $50,000, or if you can pay the balance down to less than $50,000 before establishing the streamlined installment agreement, you can avoid a tax lien.
If your unpaid balance is between $25,000 and $50,000, the IRS won’t file a tax lien if you allow the IRS to take installment agreement payments directly from your bank account or wages.
IRS Tax Freedom can show you your best methods to avoid IRS liens and levies
You definitely want a tax resolution specialist like IRS Tax Freedom to be negotiating your agreement; if you do it on your own directly with the IRS, it always works in their favor – and at your expense. We’ve never seen a client who was happy with the result of negotiating an installment agreement directly with the IRS. And we’ve helped modify a great many bad installment agreements for our clients.
When you can’t pay your tax balance to the IRS, the professionals at IRS Tax Freedom professionals have a full understanding of IRS rules for liens and levies and can help you avoid enforced collection action. The key is to be proactive in finding an agreement with the IRS that avoids liens and levies.
You need to know your options. Get help today from the trusted tax resolution experts, IRS Tax Freedom. Be sure to schedule a free consultation – or call us right away! When liens or levies are looming, time is of the essence.