Federal Tax Lien and Tax Levy

Last updated on September 27, 2022

The IRS has the legal power to collection tax debt within the ten year Statute of Limitations. Although the IRS begins collection actions by sending notices regarding the payment of tax debt, if the tax debt still remains unresolved it can move to aggressive collection actions such as tax lien and levy.

Under a tax lien, the IRS seizes the property and/or assets of taxpayers to ensure payment of tax debt. After the placement of a lien, the IRS notifies creditors about the placement of a lien, which damages the taxpayers’ ability to take credit in future. The IRS may also inform the employer of the taxpayer about the lien if payroll taxes are being withheld by the employer from the paycheck of the taxpayer.

After a tax lien, if no effort is made to resolve the tax debt by the taxpayer, the IRS moves to federal tax levy. Under it, the IRS sells the seized property and/or assets to satisfy the tax debt, fully or partially. After the placement of the tax lien, the IRS may not inform the taxpayer about the placement of a levy.

Federal tax lien and levy are the most aggressive collection actions of the IRS. They not only are damaging to a taxpayer’s ability to take credit in future, but are difficult to remove. Therefore, taxpayers must begin the resolution process once they receive an IRS notice regarding the payment of tax debt.