If you owe federal taxes and have not paid after receiving IRS notices, you may face serious collection actions such as a federal tax lien or a levy. Understanding your rights in these situations is crucial to protecting your property and ensuring fair treatment. Here’s what every taxpayer should know about their rights when confronted with a lien or levy.
What Is a Federal Tax Lien?
A federal tax lien is the government’s legal claim against your property when you neglect or fail to pay a tax debt. The lien protects the government’s interest in all your property—including real estate, personal property, and financial assets—until your tax debt is paid in full. The lien arises automatically after:
- The IRS assesses your tax liability,
- Sends you a bill (Notice and Demand for Payment), and
- You neglect or refuse to pay the debt in time.
The IRS may also file a public Notice of Federal Tax Lien (NFTL), alerting creditors that the government has a legal right to your property.
What Is a Levy?
A levy is a legal seizure of your property to satisfy a tax debt. Unlike a lien, which is a claim, a levy actually takes your property—such as funds from your bank account, wages, Social Security benefits, or even your car or home.
Your Rights When Facing a Lien or Levy
1. The Right to Be Informed
You have the right to receive clear and timely notices from the IRS. Before a lien or levy is filed or enforced, the IRS must send you a bill and, in the case of a levy, a Final Notice of Intent to Levy and Notice of Your Right to a Hearing at least 30 days before the seizure.
2. The Right to Challenge the IRS’s Actions
- Collection Due Process (CDP) Hearing:
After receiving a Notice of Federal Tax Lien or a Final Notice of Intent to Levy, you have the right to request a Collection Due Process hearing with the IRS Independent Office of Appeals. You must request this hearing by the date shown on your notice (generally within 30 days). - Equivalent Hearing:
If you miss the CDP deadline, you can request an Equivalent Hearing within one year, but you cannot go to court if you disagree with the Appeals decision.
3. The Right to Appeal
- Appeals Process:
At a CDP hearing, you can raise issues such as proposing a payment plan, an offer in compromise, or challenging the appropriateness of the collection action. If you disagree with the Appeals determination, you have 30 days to petition the U.S. Tax Court. - Collection Appeals Program (CAP):
You may also appeal certain collection actions (such as lien filings, levies, or the rejection of an installment agreement) through the CAP. However, CAP decisions cannot be appealed to court.
4. The Right to Pay No More Than the Correct Amount of Tax
If you believe the IRS’s claim is incorrect, you have the right to dispute the amount and provide documentation. If the IRS agrees, your account will be adjusted.
5. The Right to Finality
You have the right to know how long the IRS has to collect your tax debt (generally 10 years from the date of assessment, with certain suspensions possible).
6. The Right to a Fair Collection Process
- Exempt Property:
Certain property is exempt from levy, such as unemployment benefits, certain annuities, workers’ compensation, and a minimum amount of wages. - Economic Hardship:
The IRS must release a levy if it determines the levy is creating an economic hardship, meaning you are unable to meet basic, reasonable living expenses.
7. The Right to Representation
You may represent yourself or authorize an attorney, CPA, or enrolled agent to represent you in dealings with the IRS. Low Income Taxpayer Clinics (LITCs) may provide free or low-cost representation if you qualify.
8. The Right to Seek Release, Withdrawal, Discharge, or Subordination of a Lien
- Release:
The IRS must release a lien within 30 days after your tax debt is paid in full or becomes legally unenforceable. - Withdrawal:
You may request withdrawal of a Notice of Federal Tax Lien if, for example, you have entered into a direct debit installment agreement and meet certain conditions. - Discharge:
You may apply for a discharge to remove the lien from specific property, such as when selling a home. - Subordination:
You may request subordination to allow another creditor to move ahead of the IRS, which may help you refinance or obtain a loan.
9. The Right to Recover Wrongfully Seized Property
If the IRS seizes property in violation of the law, you can request its return administratively or sue for its return and, in some cases, for damages.
What Should You Do If You Receive a Lien or Levy Notice?
- Don’t Ignore IRS Notices: Respond promptly to avoid further collection action.
- Review the Notice Carefully: Understand what the IRS is claiming and the deadlines for response.
- Contact the IRS: If you disagree or need more time, call the number on your notice or visit your local IRS office.
- Request a Hearing or Appeal: If you believe the action is incorrect or unfair, request a CDP hearing or use the CAP process.
- Seek Professional Help: Consider consulting a tax professional or LITC if you need assistance.
Additional Resources
- Publication 1, Your Rights as a Taxpayer
- Publication 594, The IRS Collection Process
- Publication 1660, Collection Appeal Rights
- Taxpayer Advocate Service
Bottom Line:
You have important rights when facing a federal tax lien or levy. Understanding and exercising these rights can help you protect your property, challenge IRS actions, and seek fair treatment throughout the collection process. If you are unsure about your options, consult a qualified tax professional or contact the Taxpayer Advocate Service for help.
