Understanding IRS Liens & Levys

We all know that the IRS is the most powerful collections agency in the United States.  They have tools at their disposal that the average debt collector doesn’t.  As such, one should always be motivated to file their taxes on time, least they find themselves on the wrong side of the IRS collection machine.  In this post, we’ll talk about two of the most powerful weapons that the IRS can turn loose on a taxpayer; an IRS lien or levy.

Tax Liens
A tax lien gives the IRS claim to your property.  It’s their security towards ensuring that you pay the taxes owed to them.  Your “property” essentially means any and everything that you own.  This can include items such as your house, car, retirement accounts, social security payments or your paycheck (yup, that is fair game too).

If you try to just “disappear” and get rid of your assets, you’ll quickly find that it will be next to impossible because of the lien.  This is because once it is filed, it attaches to all of your property.  All of your creditors will be notified of the tax lien, which means that if you sell your house, car, or other property, the IRS will be the first to get paid, not the creditor.

Section 6321 of the Internal Revenue Code states that:

If any person liable to pay any tax neglects or refuses to pay the same after demand, the amount (including any interest, additional amount, addition to tax, or assessable penalty, together with any costs that may accrue in addition thereto) shall be a lien in favor of the United States upon all property and rights to property, whether real or personal, belonging to such person.

Now, the important thing to know about a lien is that the IRS cannot just cannot file it at will. There are procedures that they must follow:

  • The IRS must assess the liability against you
  • They must send you a Noti