Talk first to a tax attorney before confiding in your accountant anything about your IRS tax problems!
Hiring the right tax attorney, especially an affordable tax attorney, to help resolve your IRS tax problems can mean the difference between "financial life or death." Charles Dillon is an internationally recognized tax attorney, who stands apart from all other tax attorneys in Maryland. For nearly 20 years, clients from all corners of the globe have hired him for his tax resolution services. In fact, his professional achievements have been recognized by world leaders, high level government officials and the media. When you hire Charles Dillon to help resolve your IRS tax problems, you are hiring a tax attorney with a vast amount of legal experience solving complex IRS tax problems. He understands the stakes are very high.
IRS Form 668(Y)(c), Notice of Federal Tax Lien, is a publicly filed document. In the State of Maryland, the IRS will usually file it with the the Office of the Clerk of the Circuit Court for the country or city in which you reside or your business is located. It generally lists the amount of the IRS taxes you owe, the type of taxes which are owed, and the tax periods for which taxes are owed. It also lists the tax assessment date. It doesn't change when you make payments towards your IRS tax debt or when penalties and interest accrue. It continues to list the same amount due as when it was filed.
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For the nearly 20 years I’ve represented clients as their personal and business IRS tax attorney, one of the most common areas of confusion I’ve seen from my clients is their understanding of the difference between an IRS tax lien and an IRS tax levy. As is the case with most things involving the IRS, it is understandable why those who aren’t familiar with the day-to-day operations of the IRS to be confused by these types of IRS collection actions. It is very important, however, for individuals and businesses experiencing IRS tax problems to understand their differences because they are essential weapons in the IRS’s collection enforcement arsenal. Both are proven methods of effectively forcing payment of IRS tax debts if someone is unable or even refuses to timely pay outstanding IRS tax liabilities. While both tax liens and tax levies are filed by the IRS, and there are some procedural similarities to their issuance and ultimate removal, they are very different types of IRS collection actions.
IRS Tax Lien
Simply put, an IRS tax lien is a legal claim the IRS can make against your current or future property to guarantee payment of your unpaid IRS tax debt. Or you can think of it is a way the IRS makes your property “collateral” for your IRS tax debts. An IRS tax lien doesn’t, though, allow the IRS to seize money from your bank account. (That power is accomplished through an IRS tax levy and is discussed in more detail in the “IRS Tax Levy” section below.)
An IRS tax lien is created against your property when it files a Notice of Federal Tax Lien with a public authority, such as a County Recorder’s Office or the state’s Secretary of State. Except for a few exceptions, an IRS tax lien protects the United States government’s interest in all your property, including your real estate, personal property, and financial assets. In the State of Maryland, the IRS will usually file a Notice of Federal Tax Lien against your property with the Office of the Clerk of the Circuit Court for the country or city in which you reside or your business is located.
By the very nature of being a “publicly” filed document, an IRS tax lien officially puts the public on notice that you owe the IRS money. In other words, an IRS tax lien alerts creditors, employers, future employers, business partners, neighbors, and others that you owe the IRS money and that the IRS is asserting a legal claim against your property. Therefore, when you sell any of your property the IRS debt will be paid before you are to receive any money from the sale.
As should be expected due to the public nature of an IRS tax lien filing, once IRS Form 668(Y)(c), Notice of Federal Tax Lien, is filed, it will be located by the major credit reporting agencies and reported negatively on your credit report. Having an IRS tax lien placed against your property can severely damage your credit rating, potentially adversely affect your employment, complicate your approval of a home mortgage and individual and business loans, etc.
In general, an IRS tax lien will continue until all the IRS tax debt has been paid or ten (10) years has passed, whichever occurs first. However, there some circumstances which may extend the ten (10) collection period.
For more information about IRS tax liens, please see IRM 5.17.2.
IRS Tax Levy
An IRS tax levy is an action taken by the IRS to seize your property to pay your IRS tax debt. IRS tax levies are very feared weapons used by the IRS, and with this weapon it can take your wages, bank accounts, social security payments, accounts receivables, insurance proceeds, real property, and, in some cases, your personal residence. Under Internal Revenue Code section 6331, the IRS can “levy upon all property and rights to property” of those who owe IRS tax debts. The IRS can levy all property in your possession (this is called a “seizure”) or it can levy upon all your property in the possession of a third party, such as a bank, brokerage house, etc. The only property exempted from and IRS tax levy are listed in Internal Revenue Code section 6334, which include most unemployment benefits, workers compensation, most household goods, and some tools of your trade.
Unlike an IRS tax lien, an IRS tax levy is unknown to the public because it is not a publicly filed document. In the event the IRS serves a tax levy on your bank, then it is legally obligated to send all funds to the IRS in your bank account - up the amount stated in the IRS tax levy. The good news is, though, when the funds in your bank account are levied by the IRS, your bank cannot immediately send those funds to the IRS. Instead, Internal Revenue Code Section 6332(c), requires that the bank must hold your funds for twenty-one (21) calendar days. This 21-day hold is very important because it allows an opportunity to negotiate with the IRS to release the tax levy before your banks sends the IRS your money. Many times, after my clients have been “surprised” by an IRS tax levy upon their bank account, I’ve convinced the IRS to remove it. This is usually accomplished by detailing my clients’ overall financial situation and their ongoing efforts to become and/or remain complaint with all the IRS’s rules and regulations. Don’t expect for the IRS to be willing - at least initially - to remove its levy upon your bank account. In fact, the IRS tries to run the 21-day clock down against you to help ensure that it will be able to collect. For example, the IRS actually instructs its employees to delay sending a copy of the IRS tax levy to taxpayers. See IRM 188.8.131.52.7.
Finally, it is important to understand that an IRS tax levy upon your bank account only attaches to the money in your bank account at the moment the IRS tax levy is received. In other words, funds you deposit the following day are not supposed to be included by the bank with the funds held during the 21-day period for payment to the IRS. Later deposited funds should only be paid to the IRS pursuant to a new and separate IRS levy made against them while they are on deposit. Unlike and IRS tax levy on your bank account, an IRS tax levy on your wages, commissions, or other similar payments is a “continuing” levy. That means your employer must continue sending a significant portion of your paycheck to the IRS until your entire tax debt has been paid or the IRS has agreed to release the tax levy early.