When dealing with the IRS, it is crucial for individuals and businesses to understand the differences between tax liens and levies. Tax liens and levies are tools the IRS uses to collect unpaid taxes, and both can have serious consequences for your property and financial assets. 

Being informed about these terms helps in protecting your assets and ensures proper accounting practices. You can follow this guide on how to communicate with the IRS, which will help you choose the right professional. 

Understanding IRS tax liens and levies: Key differences

A tax lien is a legal claim the government makes on taxpayers’ property when they fail to pay their taxes on time. These include personal property, real estate, and financial assets. 

A federal tax lien exists when the IRS evaluates an individual’s tax liability, issues a Notice and Demand for Payment, and the taxpayer fails to make the required payment. Tax liens are public records and can negatively impact a person’s credit.

On the other hand, a levy represents a lawful confiscation of a taxpayer’s assets to settle their outstanding tax debt. 

Levies and liens have distinct roles; a lien asserts a property as collateral for tax debt, whereas a levy actively seizes the property to satisfy the debt. For example, levies can result in the IRS taking funds from a person’s bank account, wages, or even their home.

To have a tax lien removed, a taxpayer can submit Form 12277 to the IRS. However, it’s essential to understand the differences between tax liens and levies to ensure you protect your assets accordingly. 

We recommend staying proactive with your taxes and seeking professional advice when dealing with complex tax situations.

Significance of a federal tax lien

Federal tax liens are a powerful tool in the arsenal of the Internal Revenue Service (IRS) to collect unpaid taxes. Understanding the significance of a federal tax lien is crucial for individuals and businesses alike, as it can have far-reaching consequences on one’s financial life.

1. Effects of a tax lien

A federal tax lien is a legal claim by the IRS on a taxpayer’s assets to secure the payment of an outstanding tax debt. This lien can impact the debtor’s ability to use or sell their assets and can carry long-lasting financial consequences. 

Moreover, it affects the taxpayer’s credit score and makes it challenging to obtain loans or credit in the future.

2. Role of credit bureaus

Credit bureaus play a crucial role in the impact of a tax lien on an individual’s financial standing. The lien becomes a public document, and credit bureaus may include it in the debtor’s credit report, causing a significant drop in the credit score. 

Lenders and creditors often view tax liens unfavorably, making it difficult for the debtor to secure favorable credit terms or loans.

3. Federal tax lien versus other liens

Unlike other liens where state laws govern the protection of assets from creditors, federal tax liens provide the IRS with broad authority to pursue the taxpayer’s property. Even if it would generally be protected from creditors under state law. 

Thus, it is essential to address and resolve any outstanding tax debts as soon as possible to avoid the consequences of a federal tax lien.

Consequences of an IRS levy

Understand the repercussions of an IRS levy. Explore the financial and legal consequences, and learn how to navigate this challenging situation effectively

1. It impacts personal affairs

When the IRS imposes a levy, it can legally seize your personal property and financial assets, including wages, bank accounts, retirement accounts, and even your house. This may significantly affect your personal affairs, savings, and future financial stability.

2. Levies affect credit

An IRS levy can damage your credit score as it signals to creditors that you have unresolved tax debts. This could make obtaining loans or financing in the future more difficult, impacting your overall financial health.

Navigating the IRS collection process

The Internal Revenue Service (IRS) has a well-structured collection process in place to ensure that individuals and businesses meet their tax obligations. Understanding how to navigate this process is crucial, especially if you find yourself facing tax debt.

1. Understanding the notice and demand for payment

The collection process begins when the IRS sends a Notice and Demand for Payment. This notice explains the balance due and demands payment in full. It is crucial to respond without any delay and take appropriate action.

2. Collection due process (CDP) hearing

If you receive a Final Notice of Intent to Levy, you have the right to request a Collection Due Process (CDP) Hearing with the Office of Appeals. 

3. To preserve your appeal rights, submit a timely written request for a hearing. During the CDP hearing, we can discuss possible alternatives to levies, such as payment plans or debt resolution options.

Offer in compromise: An option

An Offer in Compromise (OIC) is an IRS agreement to settle tax debt for less when payment is financially challenging. It considers the ability to pay income, expenses, and assets. 

OICs help individuals and businesses resolve tax bills but aren’t for everyone; those who can pay in other ways usually don’t qualify.

Consult a tax professional before applying, as it’s complex. Careful preparation and understanding eligibility are crucial for a mutually beneficial compromise.

Preventive measures and solutions

Stay proactive with preventive measures and solutions. Discover effective strategies to safeguard your economic prosperity and address the potential issues before they escalate.

Options to release, withdraw, and subordinate tax liens

One option to release a federal tax lien is by paying your tax debt in full, and the IRS releases the lien within 30 days. Alternative solutions are available, such as requesting a withdrawal of the tax lien. 

Additionally, when it’s in the best interest of both the taxpayer and the government, the IRS may issue a certificate of subordination of a federal tax lien to subordinate a tax lien, providing an opportunity to refinance a mortgage or obtain new loans.

Also Read: Taxation in Nigeria: A Beginner’s Guide To Nigeria’s Tax System.

Preventive actions to avoid IRS levies

To prevent IRS levies, it’s crucial to address any tax debt as soon as possible. We recommend

  • Creating an installment agreement with the IRS enables you to make smaller, scheduled payments toward your tax debt over an agreed-upon duration.
  • Going one step further and setting up a direct debit installment agreement ensures timely and automatic payments, thereby reducing the risk of default.
  • Ensuring your financial assets are structured to minimize exposure to potential levies. For example, consider establishing an asset protection trust before tax liabilities arise.

Taxpayer rights and advocacy

Taxpayers have rights, such as being informed, confidentiality, and representation. The Taxpayer Advocate Service, an IRS entity, assists with issue resolution and protecting these rights. Publication 1660 details collection processes. 

In tax liens and levies, the Internal Revenue Code (IRC) governs IRS authority. Publications 783 and 784 outline lien and levy release procedures. To address errors or rights violations, contact the IRS or the Taxpayer Advocate Service for support, ensuring asset protection and a fair tax system.


In understanding IRS tax liens and levies, we aim to protect our assets and navigate potential financial challenges. It is crucial to stay informed and be proactive in addressing tax matters to minimize impacts on personal and business properties.

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