The IRS has the ability to attach liens to property as a way of securing tax debt; however, when the debt is unpaid, the IRS can also issue a levy. A lien is usually issued after the IRS has notified a taxpayer that there has been a liability assessed, a demand for payment has been made, and the debt remains unsettled. Liens are security against the debt and show creditors that the IRS has a claim on the property.
Levies are different than liens, as they give the IRS the actual seizure of property in order to sell it to settle the debt. Levies also allow the IRS to seize items that you own but are held by another person or entity.
Levies can be placed on:
Real property – this includes homes, real estate, boats, cars, and any other physical property that can be sold to reduce the debt Bank Accounts – Checking, savings and other accounts held by financial institutions can be levied Account Receivable – Monies owed to the taxpayer or taxpayer’s business can be attached Tax Refunds, State or Federal – The IRS can seize any state or federal refunds due to the taxpayer Wages and Commissions – Any money earned by the taxpayer can be subject to garnishment Investment Accounts, Retirement Accounts, or Cash Value Life Insurance policies
Before taking this action, the IRS makes attempts to resolve the debt. The agency sends out a Notice and Demand for Payment, which is a bill for any unpaid tax liability the taxpayer owes. If it is ignored or refused, a Final Notice of Intent to Levy and Notice of Your Right to A Hearing is sent out at least 30 days before action is taken.
There are two methods for a taxpayer to contest the IRS actions. A Collections Appeals Program, any decision is binding and will not be subject to review by the United States Tax Court.
Taxpayers have rights throughout the tax process and should be aware of the proper steps the IRS must take when there is a tax liability owing. They also should be aware of their own rights, and the correct appeals process. These can be obtained in Publication 5, Your Appeal Rights, as well as other IRS publications that fit specific tax situations.