Tax Liens, Levies, and Garnishments

Tax Liens, Levies, and Garnishments

The IRS can be difficult to deal with, especially if you need to learn about taxes. For those who owe the IRS money, it is critical to understand how the IRS operates as well as any potential action the IRS may take against you.

 If you owe taxes, they can put you in collections, garnish your wages, put a lien on your physical assets, or even levy your bank account (s).

Tax Lien

A tax lien is a legal declaration placed on a property by the government due to the owner’s failure to pay taxes. The lien gives the government the right to seize and sell the property to recoup the owed taxes.

If the property is sold, the proceeds are used to pay off the tax debt, with any remaining funds being returned to the property owner. Instead of seizing the property directly, the government may auction off the tax lien to a third party, such as an investor, in some cases.

If the debt is not repaid, the winning bidder at the tax lien auction has the right to collect the debt, including any interest and penalties, and potentially gain property ownership. It is important to note that a tax lien can harm the property owner’s credit score and ability to sell or refinance the property.

Levy

A levy is the government’s legal seizure of property to satisfy a debt or obligation, such as unpaid taxes. Personal or real property, bank accounts, wages, or other assets can all be levied. Unlike a tax lien, a claim on property, a levy seizes the property and sells it to pay off the debt.

A levy is typically used as a last resort by the government to collect a debt and can have serious consequences for the taxpayer, such as wage garnishment or bank account seizure. To avoid a levy, it is critical to resolving the debt as soon as possible.

Garnishment

Garnishment is a legal process that involves seizing a portion of an individual’s wages or bank account to satisfy a debt, such as unpaid taxes or a court judgement. A garnishment order will be served on the individual’s employer or bank by a creditor, such as the government or a creditor, or with a court judgement, requiring them to withhold a portion of the individual’s earnings or funds to pay off the debt.

Garnishment can significantly impact an individual’s financial situation because it reduces available income and makes meeting monthly expenses more difficult. Under federal and state law, certain income and assets are exempt from garnishment. Individuals facing garnishment should understand their rights and, if necessary, seek the advice of a financial professional or an attorney.

The Difference

The distinction between tax liens, levies, and garnishment is in collecting a debt owed to the government (such as unpaid taxes) or a creditor with a court judgement.

A tax lien is a legal petition placed on a property by the government due to the owner’s failure to pay taxes. If the debt is not repaid, the government may auction off the lien to a third party, such as an investor, who will have the right to collect the debt and potentially gain ownership of the property.

A levy is the government’s legal seizure of property to satisfy a debt or obligation, such as unpaid taxes. Levies can be imposed on personal or real property, bank accounts, wages, or other assets, with the government physically seizing the property to sell it and use the proceeds to repay the debt.

Garnishment is a legal process that involves seizing a portion of an individual’s wages or bank account to satisfy a debt, such as unpaid taxes or a court judgement. A garnishment order will be served on the individual’s employer or bank, requiring them to withhold a portion of their earnings or funds to pay off the debt.

In summary, a tax lien is a claim on property, a levy is a seizure of property, and a garnishment is a seizure of wages or funds from a bank account.

The consequences of settling your tax debt

Failure to pay your tax debt can have serious consequences, including:

  • Penalties and interest: If taxes are not paid on time, they will accrue interest and penalties, increasing the amount owed.
  • Tax liens: The government may impose a tax lien on your property, preventing you from selling or refinancing it.
  • Levies: The government can seize your property, such as real estate, bank accounts, and wages.
  • Garnishment: Your wages may be garnished to repay the debt.
  • Passport Seizure: The US State Department may revoke or deny your passport if you owe significant back taxes.
  • Criminal prosecution: In extreme cases, the government may seek criminal prosecution for tax evasion or fraud.

To avoid these consequences, it is critical to address any outstanding tax debt as soon as possible. You can negotiate a payment plan or make a compromise offer to the government to settle the debt.

Removing IRS Tax Levy

The Internal Revenue Service (IRS) levy is a legal action taken by the IRS to collect unpaid taxes. You can remove an IRS tax levy by taking the following steps:

  1. Pay the outstanding balance in full – Paying the balance immediately removes the levy.
  2. Enter into a payment agreement – If you cannot pay the balance fully, an instalment agreement allows you to make monthly payments.
  3. File an appeal if you believe the levy is incorrect or if you have circumstances that warrant special consideration.
  4. Provide evidence of hardship – If you can demonstrate that the levy is causing you undue financial hardship, the IRS may be willing to lift it.

It is important to note that responding quickly to an IRS tax levy can help prevent further enforcement actions, such as wage garnishment or bank account seizure.

The Bottom Line

Tax arrears can be detrimental to both your personal and business finances.

If you want your problems resolved, you must get in touch with IRS Problems.

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