Lien vs. Levy: What’s the Difference?

Lien: A federal tax lien is the government’s legal claim against all your current and future property (real, personal, tangible, or intangible) when you neglect or refuse to pay a tax debt after demand. The lien arises automatically after the IRS assesses your liability, sends a Notice and Demand for Payment, and you fail to pay. The IRS may then file a public Notice of Federal Tax Lien to alert creditors of its claim .

Levy: A levy is the actual legal seizure of your property to satisfy a tax debt. This can include garnishing wages, freezing bank accounts, or seizing and selling physical assets like vehicles or real estate. The IRS must generally provide a Final Notice of Intent to Levy and Notice of Your Right to a Hearing at least 30 days before seizing property, except in certain jeopardy or special circumstances.

 

Your Rights When Facing a Lien

1. Right to Notice
   • The IRS must assess your tax, send you a bill (Notice and Demand for Payment), and give you time to respond before a lien arises. If you do not pay, the IRS may file a Notice of Federal Tax Lien, which becomes public record.
2. Right to Appeal
   • You have the right to appeal the filing of a Notice of Federal Tax Lien through a Collection Due Process (CDP) hearing. The IRS must notify you of this right within five business days of filing the lien. You may also use the Collection Appeals Program (CAP) to challenge the lien .
3. Right to Lien Withdrawal or Release
   • The IRS must release the lien within 30 days after the debt is paid in full, becomes legally unenforceable, or a bond is accepted. You may request withdrawal of a lien if it was filed in error, you entered into a qualifying installment agreement, or withdrawal is in your and the government’s best interest. A withdrawal removes the public notice but does not eliminate your liability.

Your Rights When Facing a Levy.

1. Right to Final Notice
   • Before levying your property, the IRS must send a Final Notice of Intent to Levy and Notice of Your Right to a Hearing at least 30 days in advance, except in certain jeopardy or special cases.
2. Right to a CDP Hearing
   • You can request a Collection Due Process hearing (using Form 12153) within 30 days of the final notice. This stops the levy while your case is reviewed by the IRS Independent Office of Appeals. You may raise issues such as collection alternatives (installment agreement, offer in compromise), spousal defenses, or challenge the underlying liability if you did not previously have an opportunity to do so.
3. Right to Claim Economic Hardship
   • If a levy would cause immediate economic hardship—meaning you cannot meet basic, reasonable living expenses—the IRS must release the levy.
4. Right to a Levy Release
   • The IRS is required to release a levy if:
     • You pay the debt in full,
     • The collection period expired,
     • The levy is causing economic hardship,
     • You enter into an installment agreement (if the terms do not allow the levy to continue),
     • The value of the property exceeds the debt and releasing it will not hinder collection,
     • The levy was issued improperly (e.g., against exempt property, prematurely, or without required notice).

 

What If the IRS Makes a Mistake?

• You have the right to appeal wrongful levies or liens through the CDP or CAP process.
• You may file a claim for return of levied property (generally within 9 months of the seizure, or 2 years for wrongful levy claims).
• If administrative remedies are denied, you may sue the United States (not the IRS employee) for economic damages in federal court [4] [5].

How to Protect Yourself

• Respond Promptly: Do not ignore IRS notices. The sooner you respond, the more options you have.
• Request a Hearing: Use Form 12153 to request a CDP hearing within 30 days of the final notice.
• Submit Financial Information: Use Form 433-A or 433-F to document your financial situation if you are seeking relief due to hardship or negotiating a payment plan.
• Work with a Tax Professional: A tax attorney, CPA, or enrolled agent can help you navigate appeals and negotiate with the IRS.

Final Thoughts

Facing a lien or levy is serious, but you have significant rights and protections. The IRS must follow strict procedures, and you can challenge or appeal their actions at multiple stages. By understanding your rights and acting quickly, you can protect your assets and work toward resolving your tax debt.

Dealing with a lien or levy? Contact us now to protect your rights and explore the best path forward.

References:

Internal Revenue Code §§ 6321, 6331, 6334, 6330
IRS Publication 594: The IRS Collection Process
IRS Publication 1468: Lien Processing