Federal tax law gives the IRS multiple tools for collecting unpaid taxes. Several of these do not require the IRS to file anything with a court before acting. A federal tax lien makes the tax debt a matter of public record and can have a substantial effect on a taxpayer’s financial interests. The IRS may also levy a taxpayer’s property in many cases, meaning it can seize any property not exempted under federal law. In the early days of the COVID-19 pandemic, the IRS offered taxpayers a respite from collection activities. While that respite ended last summer, some forms of relief may still be available for Pennsylvania taxpayers who owe the IRS.
Tax Liens vs. Tax Levies
The terms “lien” and “levy” sound somewhat similar, and people sometimes get them confused with one another. The two processes are related, but they are also very different from one another. Understanding the difference is very important.
Federal Tax Liens
A lien is a type of legal right over someone’s property, which creates a security interest for a creditor. In order to acquire a lien over a taxpayer’s property, the IRS must send a notice to the taxpayer informing them of the amount of tax they owe and making a demand for payment. Ten days after the IRS demands payment, the lien attaches to the taxpayer’s property if they have not paid the amount demanded.
If the IRS files a notice of tax lien with the county clerk where the taxpayer resides, their lien takes priority over any other liens in effect at the time. This means that the tax debt owed to the IRS gets paid before any other creditor with a lien. The IRS must notify the taxpayer of the filing within five days.
Federal Tax Levies
While a lien is simply a legal instrument that affects the taxpayer’s ownership interest in their own property, a tax levy allows the IRS to take property and apply its value to the taxpayer’s debt. The IRS must give notice and demand payment at least ten days before executing a levy. This could involve garnishment of wages or bank accounts or seizure of personal property. Federal law exempts many types of property from seizure for a tax levy.
Liens and Levies During the Pandemic
The COVID-19 pandemic began in the U.S. in early 2020, with widespread efforts to contain the spread of the virus beginning in March. The IRS announced its People First Initiative, intended to assist people who had lost their jobs or were experiencing other financial hardships due to the pandemic. The annual tax deadline, usually on April 15, was moved to July 15. Payment deadlines for taxpayers with installment agreements were extended. The IRS also announced that it would suspend enforcement activities, including liens and levies.
This initiative mostly ended in July, but the IRS has announced other measures that take the economic impact of the pandemic into account. The Taxpayer Relief Initiative, announced in November, extends the dates for many installment agreements and allows for delays in liens, levies, and other collection activities.
Brandywine Tax Resolution represents Pennsylvania taxpayers, helping them with local, state, and federal tax problems. A tax attorney can advise you of your legal rights and options, advocate for you in court if necessary, and find solutions for your particular needs. To schedule a confidential consultation with a skilled and proficient taxpayer advocate, please contact us today, online or at (610) 235-7577.