Tax Liens and Levies

The IRS issues tax liens and levies when you owe back taxes and haven't paid your debt. Liens and levies can place you in serious financial trouble. If the IRS or the state of California has sent you notice informing you of an impending lien or levy, you should speak with an experienced tax attorney as soon as possible. A California Tax Attorney can help you understand your options.

What Is an IRS Tax Lien?

If your federal tax bill remains unpaid, the IRS can place a tax lien on your personal property. A lien will not allow the government to seize your property. Instead, it lets the government secure its interest in your property when you don't pay your back taxes.

The IRS will attach a tax lien to property you own, as well as property you may acquire in the future. For example, if you sell your house, the government is entitled to proceeds and equity to help pay off your tax debt. If you still have back taxes owed and buy another home, the lien will carry over to the new property. The IRS typically chooses real estate property when issuing a lien, although it's not only your home that could be the target. If you own a business, the IRS could place a lien on it as well.

Liens from the State of California

In California, the Franchise Tax Board (FTB) is the agency responsible for issuing tax liens against residents. If you have outstanding tax debt and don't take any action, the state will file a Notice of State Tax Lien against you. California has the right to attach a lien to your real and personal property.

Real property could be vacant land, buildings, or homes that you own. Personal property includes business equipment and assets, mobile homes, cars, or trucks. Once the FTB files a lien against you, it will become a public record and searchable online. The lien is also effective for 10 years minimum (with the possibility of extension) and could affect your credit score. As a lien is a public record in California, having one against you could prevent you from buying, selling, or refinancing property, and can even impede you from getting a loan or getting a job.

What Is an IRS Tax Levy?

If you have unpaid taxes, the IRS also has the authority to seize your property. A tax levy allows the government to take personal and business property. Before the levy takes effect, the IRS will send you a tax letter entitled Final Notice of Intent to Levy and Notice of Your Right to a Hearing.

Examples of the assets the IRS could levy

  • Home
  • Vehicle
  • Wages
  • Bank account
  • Retirement benefits

The IRS could seize your house or family car if you have tax debt. They could also garnish a percentage of your wages until your back taxes are repaid. The IRS is not allowed to levy some assets, however.

Examples of assets the IRS cannot levy

  • Unemployment benefits
  • Workers' compensation benefits
  • Essential clothing and household items
  • Some pension and disability benefits

Can a Tax Levy Be Reversed?

When they learn the IRS has issued them a levy, most people wonder how quickly they can make it go away. The IRS will release a levy under certain circumstances. If they deny your request for a release, you can also appeal.

When is the IRS required to release a levy?

  • You pay your tax debt
  • The collection period ended before the IRS issued the levy
  • Releasing the levy will help you pay your taxes
  • You set up an Installment Agreement that doesn't allow the levy to continue
  • The levy creates an economic hardship, preventing you from meeting basic needs
  • The IRS levies a property worth more than the amount owed, and a release won't prevent the IRS from collecting the debt

Keep in mind that the release of a levy does not forgive your tax debt. You must still pay your back taxes by making an arrangement with the IRS.

California State Tax Levy

The state of California's FTB can issue levies to collect payment for state and local back taxes. The FTB also refers to levies as an Order to Withhold.

Actions following a California state tax levy:

  • Taking funds from your bank accounts
  • Taking ownership of real estate and other property
  • Garnishing your wages

To lift a California state tax levy, you must arrange with the state to repay your tax debt.

What to Do If You Receive a Lien or Levy from the IRS

The IRS or state of California will always notify of an impending lien or levy. How you respond after receiving notice will depend on whether you've received a lien or a levy.

Responding to a Tax Lien

The IRS will send you a Notice of Federal Tax Lien to inform you and your creditors that your property is under lien. You can choose to pay the tax bill in full before 30 days, and the government will remove the lien on your property.

Your other option is to appeal the lien. To do so, you must explain to the IRS why you disagree and propose alternatives to pay off your debt.

Responding to a Tax Levy

You will receive a Final Notice of Intent to Levy before the IRS can seize your property or garnish your wages. You can appeal the decision within 30 days and try to arrange an installment plan or offer in compromise to pay off the debt.

Need Help with Your Tax Lien or Levy?

When you receive notice of a lien or levy from the IRS or the state, it's important to act quickly. Consulting with an experienced tax attorney can help you resolve the matter and show you your options. Contact a California Tax Attorney today to learn more about liens and levies and set up a consultation.

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