Frequently Asked Questions about IRS Collection and Lien Defense

What Is The Difference Between A Tax Levy And A Tax Lien?

A tax lien is a claim on your assets (i.e. real estate and/or personal property) that the federal government uses to secure the debt it claims is owed itself from you. The federal tax lien allows the IRS to receive its monies upon the subsequent transfer of your asset(s). When a tax levy is issued by the IRS, the federal government is immediately taking money out of your bank account. Another type of levy is a wage garnishment.

What is a Federal Tax Lien?

A federal tax lien is a claim by the IRS that is registered against a taxpayer's real or personal property for non-payment of assessed taxes.

A federal tax lien is created by assessment of tax, a notice and demand for payment letter, and then non-payment by the taxpayer. However, even before notice of the federal tax lien is filed, there is a general rule of attachment under the Internal Revenue Code that gives the United States a claim upon all property and rights to property of a taxpayer. In addition, anything acquired by the taxpayer after the lien arises is immediately attached by the general tax lien.

If the Internal Revenue Service has properly filed a federal tax lien, they can seize and sell your real estate or personal property. Likewise, the IRS can seek to levy property that is yours as well. The IRS may seek to garnish your wages, or levy against your retirement accounts, dividends, bank accounts, licenses, rental income, and accounts receivables

The Notice of Federal Tax Lien is a document filed by the IRS to protect the federal government's interest against other potential creditors such as bona fide purchasers and judgment creditors.

What is a Tax Levy?

A tax levy is a seizure of property to satisfy a tax debt. Whereas a tax lien is a claim that the Internal Revenue Service utilizes as security for payment of a tax debt, a tax levy actually takes property or wages to satisfy the debt. Tax Levies occur in one of two ways: Bank levies and Wage Garnishments

How Can We Stop or Release an IRS Tax Levy?

The IRS will levy once three conditions have been satisfied:

1. The tax liability must have been assessed and the taxpayer must have been notified of a Demand for Payment;
2. The taxpayer must have refused or neglected to pay the tax liability;
3. A Final Notice of Intent to Levy as well as a Notice of Your Right to a Hearing must have been sent by the IRS to the taxpayer at least 30 days before the tax levy was issued.

If you have been assessed by the IRS you will either be given notice in person or the IRS may leave the notice at your home or place of business. The IRS may also send the notice to your last known address by certified or registered mail along with a return receipt requested.

Can The IRS Levy Against My Bank Account?

The most common levy the IRS uses for collection is a levy against the taxpayer's interest in a bank account. If administrative resolution of the tax liability is unlikely, and no administrative agreement can be reached with the IRS, the depository institution is required to turn over the funds to IRS to the extent of the levy.

A bank must wait 21 calendar days after a levy is served before sending payment to the Internal Revenue Service. Then, on the next business day, the bank must turn over the taxpayer's money. The bank will not send money that is subject to attachment or execution under judicial process. During the 21 day holding period, a bank levy may be released, or the amount owed may decrease. If the bank receives no release, it must send the payment after the holding period. No additional notice is required.

The bank must send to the IRS whatever money is in the taxpayer's account at the time the levy is received, up to the amount of the levy. The notice of levy only reaches the amount on deposit when the levy is received. Money deposited later is not surrendered, including deposits during the holding period. Another levy must be served by the IRS to reach this additional deposited money. Also, the levy only reaches deposits that have cleared and are available for the taxpayer to withdraw.

How Does the IRS Garnish my Wages and Other Property?

The IRS may proceed to levy upon property to collect a tax liability after proper notice. Under the levy authority, the IRS can seize property held by the taxpayer or a third party. There are appeal procedures during enforced collection proceedings (a Collection Due Process Appeal or an Offer in Compromise), during the prosecution of which the IRS is prohibited from levying upon a taxpayer's assets.

A wage garnishment requires an employer to withhold part of a taxpayer's income or wages for the purpose of paying off the taxpayer's debt. Unlike a bank levy, the wage garnishment is continuous in nature, meaning the IRS will continue to receive money from your employer until either the tax debt is satisfied, the taxpayer loses or quits his job, or a negotiated agreement is reached between the taxpayer and the IRS.

The IRS may obtain a writ of entry to enter private premises to seize property. A writ of entry, however, is only necessary if the IRS needs to obtain access to areas where the taxpayer has a reasonable expectation of privacy.

Can a Tax Levy Be Appealed?

Yes, a tax levy can be appealed. Often the IRS tax attorneys at Mooney McGinn LLP have helped our clients appeal a tax levy by requesting a Collection Due Process hearing with the Office of Appeals.

There are many grounds for appealing a tax levy, including:

1. All taxes owed have been paid prior to the IRS sending the notice of levy;
2. A procedural error on the part of the IRS was made during the assessment;
3. The statute of limitations on the collection of the tax expired prior to the IRS sending the notice of levy;
4. No opportunity was afforded the taxpayer to dispute the assessed liability;
5. If the IRS has assessed the tax and sent the notice of levy when the taxpayer was in bankruptcy, the tax levy is subject to an automatic stay during bankruptcy proceedings;
6. The taxpayer makes a request to discuss collection options; and
7. An innocent spousal relief claim is made by the taxpayer.

Can the IRS Put a Lien on Property My Spouses with Me?

Yes. In 2002, the United States Supreme Court decided, in United States v. Craft, 535 U.S. 275 (2002), that the federal tax lien of one spouse resulting from the separate tax liability of the other spouse attaches to the property held in a tenancy by entireties. Thus, individual rights in the estates sufficient to constitute "property" or "rights property" exist for purposes of a tax lien under Section 6321 of the Internal Revenue Code to attach such code.

Can My Homestead Exemption Protect Me from Federal Tax Liens?

No, unfortunately not. The Homestead exemption does not prevent attachment or execution of a federal tax lien. Even if only one spouse is liable for the tax debt and the non taxpayer-spouse has a homestead interest, the federal tax lien attaches to the entire property and that property can be seized by the IRS and the interest sold in an administrative or judicial sale.

Are My Alimony Payments Protected from a Federal Tax Lien?

Surprise. No, they are not. Even alimony payments are subject to attachment by the federal tax lien. Note however that child support payments, on the other hand, are not because these are the property of the child and not the taxpayer-parent.

What If I Can't Afford an Attorney?

A Low Income Tax Clinic may represent you if you qualify. A Low Income Tax Clinic is an independent organization that provides low income taxpayers with representation in federal tax controversies with the IRS for free or a nominal charge.

Publication 4134, Low Income Taxpayer Clinic List, provides information on clinics in your area and is available at your local IRS office, by calling 1-800-829-3676, or from www.IRS.gov.

How Do I Get Started?

You can contact us at 617-245-8080, or by emailing the Massachusetts and Federal Tax Attorney Tax Attorneys Mooney McGinn LLP. We offer a confidential consultation to assess your needs and recommend a specific course of action.

The Massachusetts Tax Attorneys at Mooney McGinn LLP represent clients throughout greater Boston, the Commonwealth of Massachusetts, and (for representation with the IRS) across the United States.

The Tax Attorneys at Mooney McGinn LLP assists individuals and businesses in resolving federal tax issues and state tax issues. We also help our tax clients implement plans to avoid future IRS problems.

If you need help with an IRS tax issue, call Massachusetts Tax Attorneys at Mooney McGinn LLP at 617-245-8080 for a free consultation.

Here is a list of the tax services Tax Lawyers Mooney McGinn LLP provides and the federal tax issues we resolves everyday for our clients:

• Resolution of Tax Levies
• Stopping Garnishments
• Tax Lien Releases
• Tax Litigation
• IRS Tax Audits
• IRS Tax Appeals
• Bankruptcy Litigation involving Tax
• Reduction or Elimination of Interest
• Business Tax Planning
• Individual Tax Planning
• Personal Income Tax Return Preparation
• Business Income Tax Return Preparation
• Estate Planning - Trusts
• Tax Planning
• Tax Consulting
• Tax Collection Counseling
• Abatement of Penalties
• Offers in Compromise
• IRS Payment Plans
• Installment Agreements
• Payroll Taxes & Independent Contractor
• Innocent Spouse Relief
• Statute of Limitation Issues
• Business Entity Planning - Business Formation