IRS Tax Liens & Levies

What is an IRS Tax Lien or IRS Levy?

The Internal Revenue Code, specifically IRC Section 6321 and 6322, allow the Internal Revenue Service to file a tax lien (Notice of Federal Tax Lien) in favor of the United States government when a taxpayer has an outstanding tax debt and does not satisfy the applicable tax debt after the government has made a demand for payment. 

What Does the IRS Tax Lien Attach To?

The federal tax lien will attach to all property of the taxpayer and this includes all right to property that the taxpayer may have.  The federal tax lien arises automatically per statute if or when the taxpayer does not satisfy the underlying tax debt within 10 days from the demand notice. The tax lien will relate back to the date the tax was assessed.  In terms of priority, the notice of federal tax lien does not protect the IRS against other creditors or perfect the IRS’ lien position against other creditors of the taxpayer until the actual Notice of Federal Tax Lien is filed.  The lien, which is public record must be filed. If the IRS has filed a tax lien against you, we recommend you speak with a tax attorney immediately.

Where or How Does the IRS File A Tax Lien?
 
The IRS will generally file the federal tax lien in the county where the taxpayer resides and/or in any county where the taxpayer is known to own real property.  Furthermore, if the taxpayer is a business entity, the IRS is likely to file the notice of federal tax lien with the secretary of state in the state whereby the taxpayer conducts business.  The federal tax lien is a matter of public record and although the IRS has taken steps to prevent further negative consequences, the tax lien can have a negative effect on a taxpayer’s credit.  Once the tax lien is filed, if the taxpayer were to sell any assets, techincally the proceeds should be paid over to the IRS and Certificate of Discharge of Federal Tax Lien applied for and received for the seller to have properly transferred the asset and for the buyer to hold clear and clean title.  Because real estate is a common asset, if the IRS has filed a tax lien and the taxpayer’s sells their real estate, the title company will pay the proceeds from the sale to the IRS and will likely require documentation that the tax lien is satisfied or the lien discharged to close on the real estate transaction. 

When Does the IRS Release a Tax Lien?
 
The IRS should release a federal tax lien within 30 days of the applicable tax liability being satisfied.  Additionally, the IRS can withdraw a federal tax lien if this withdrawal facilitates collection of the tax debt or is deemed in the best interests of the government.

What if I sell an Asset and the Sale Price or Proceeds Will not Fully Payoff My Tax Debt?

If the sale of an asset will not full pay the tax debt to release the tax lien, in general, the taxpayer should request a discharge of the federal tax lien.  In short, for a discharge of the tax lien, the taxpayer shows the IRS what is being sold, who the buyer is and that they are receiving fair market value for the asset and thus the IRS is receiving what they should receive for the IRS.  When the IRS discharges the lien, they are not discharging or release the entire lien but more or less stating the asset, assuming the proceeds are paid over the IRS, no longer has the tax lien attached to it and the buyer owns the asset free and clear of the tax lien. 
 
IRS Levies & Wage Garnishments
 
When a taxpayer has an outstanding tax debt with the IRS and and has not established or proposed a formal agreement, the IRS will eventually issue what is called a Final Notice of Intent to Levy (Letter 1058 or LT 11).  A final notice of intent to levy does give the taxpayer due process and the ability to request a hearing but if the taxpayer does not request a hearing within a certain period or time or establish an agreement after the final notice is issued, the IRS can legally enforce collection of the tax with levies and the seizure of assets.

What is a Bank Levy?
 
A bank levy occurs when the IRS issues a formal levy notice to the taxpayer’s bank.  The levy notice will state the taxpayer’s information and the amount of funds due to the IRS that the bank levy could potentially attach to.  Upon receipt of the levy notice, the bank is required to hold the money in the taxpayer’s bank account on the day the levy notice from the IRS is received up and to the amount of the bank levy for 21 days.  After 21 days has passed from the date of the bank levy, unless the levy has been fully or partially released the bank would then release the funds to the IRS and any funds paid over from the levy would be credited to the taxpayer’s balance owed.

What is a Wage Garnishment from the IRS?
 
A wage garnishment occurs when the IRS forwards a levy notice to the taxpayer’s employer that the taxpayer’s wages are to be paid to the IRS in satisfaction of the current tax debt.  A portion of a taxpayer’s wages is excluded from garnishment and the exclusion amount is based upon the taxpayer’s number of dependents.  That being said, after the exclusion amount, the remaining amount of the taxpayer’s wages must be paid to the IRS.  If an employer fails to properly withhold wages from a garnishment and pay them over to the IRS the employer may be liable to the Internal Revenue Service.  Like a bank levy, wage garnishments issued by the IRS may be released or partially released by the IRS depending upon the circumstances.

How Can I Prevent a Bank Levy or Wage Garnishment From the IRS?
 
A taxpayer can take certain actions that will prevent the IRS from issuing bank levies and wage garnishments.  These actions and options  include the taxpayer proposing an installment agreement or offer in compromise to the IRS, finalizing an installment agreement or offer in compromise, Requesting a Collection Due Process Hearing in relation to a final notice of intent to levy or filing bankruptcy.  Generally speaking, the proposals need to be made in good faith and not frivolous.  If you or your business are experiencing IRS debt or collection problems, please contact a Columbus tax attorney at The McGuire Law Firm to discuss your tax issues and circumstances.
 
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