The Federal tax lien is the process by which the Internal Revenue Service (“IRS”) obtains a security interest or encumbers property for the payment of an assessed tax liability.  The Federal tax liens arises where the IRS notifies the taxpayer of a tax liability and the taxpayer  neglects or refuses to pay a tax liability (including any interest, additional amount, addition to tax, or assessable penalty, together with any costs that may accrue in addition thereto).   

Generally, the taxpayer or "person liable to pay any tax" must pay the tax liability within ten days of the written Notice and Demand.  If the taxpayer fails to pay the tax within the ten day period, the federal tax lien arises automatically.

The Federal tax lien becomes unenforceable ten years after the date of assessment or for a limitations period of six years after the date of assessment.  It is important to note the existence of various exceptions may extend these time periods.

The IRS will "perfect" the Federal tax lien (to create a priority right) against other third parties (such as competing retailers, credit card companies and other creditors).  The IRS perfects its tax lien by filing a Notice of Federal Tax Lien (“NFTL”) in the records of the county or state agency or court where the property is located.  The NFTL gives the IRS priority claim as a creditor to all property owned by the taxpayer as of the tax assessment date.

The IRS provides standardized remedies to resolve an NFTL: (i) Withdrawal (e.g., premature notice, existing installment agreement, facilitates tax collection or best interest of taxpayer and IRS); (ii) Release (e.g., tax liability satisfied); (iii) Discharge (e.g., property to be sold or mortgaged); (iv) Subordination (e.g., refinancing or obtaining second mortgage), and (v) Nonattachment (e.g., similarity of names).   In these situations that qualify for the removal of a lien, the IRS will generally remove the lien within 30 days and the taxpayer may receive a copy of the Certificate of Release of Federal Tax Lien.

For more information or questions about your specific tax matter, please contact the office or click CONTACT US. 

Federal Tax Levy

A Federal tax levy is an action that the IRS uses to take possession and sales a taxpayer’s property (e.g., vehicles, bank accounts, real or personal property, wages, etc.) to satisfy an unpaid tax liability.  The levy is distinguishable from the Federal tax lien in that the levy only gives the IRS an interest in the taxpayer’s property, whereas the levy allows the IRS to take possession of the taxpayer’s property.  Note that a Notice of Intent to Levy must be issued by the IRS at least thirty days prior to the actual Federal tax levy.

It worth noting that the IRS may seize and sell any type of real or personal property owned by the taxpayer or property that the taxpayer has an interest.  For example, the IRS may seize and sell property that is in possession (such as your car, boat, or house), or the IRS could levy property that is owned by the taxpayer but is held by someone else (such as your wages, retirement accounts, dividends, bank accounts, licenses, rental income, accounts receivables, the cash loan value of a life insurance, or commissions). 

The IRS normally levy after three requirements are satisfied: 

• IRS assessed the tax and sent you a Notice and Demand for Payment;
• Taxpayer neglected or refused to pay the tax; and
• IRS sent a Final Notice of Intent to Levy and Notice of Your Right to A Hearing (levy notice) at least 30 days before the Federal tax levy.

Federal Payment, State Refund & Bank Account Levies

The levying of wages, salary, and federal payments terminates when the levy is released, payment of tax debt or the time (statute of limitations) expires for collection of the tax liability.  In contrast, if a levy is filed against a bank account, the bank must hold the taxpayer’s deposited funds up to the amount owed on the tax liability for 21 days. This holding period allows time for the IRS to resolve any issues about account ownership. After 21 days, the bank must send the deposited money plus any applicable interest to the IRS.
The IRS must release a levy under the following circumstances:

• Payment of the tax liability or bar by the statute of limitations,
• Release would facilitate collection of taxes,
• Existence of installment agreement,
• Economic hardship for taxpayer, and
• No hindrance to collection of tax liability.

For more information or questions about your specific tax matter, please contact the office or click CONTACT US.

"The hiring of a lawyer is an important decision that should not be based solely upon advertisements.  Before you decide, ask us to send you written information about our qualifications and experience."