To collect tax debt, the IRS uses various actions, including sending of notices, the placement of federal tax lien, and the placement of tax levy. These actions by the IRS to collect tax debt begin after the IRS discovers the unpaid taxes. Initially, the IRS sends notices to inform the taxpayer about the tax debt and suggest methods of resolution. If the notices remain unanswered and the taxpayer does not make satisfactory efforts to resolve the tax debt, the IRS moves to aggressive actions namely tax lien and tax levy.
Federal Tax Lien
A tax lien is the government’s claim to your property or assets to ensure payment of tax debt. The IRS can place a lien on an asset you own such as a boat, house, vehicles, securities, etc. or to any assets that are acquired during the duration of the lien.
After a lien has been placed, the IRS files a public notice to inform creditors and others of the tax debt. This public notice damages the taxpayer’s ability to take credit, and may also hurt employment opportunities. In case of a business, a lien may be attached to a business property and/or to rights to business property, including accounts receivable.
Federal Tax Levy
Tax levy is placed after no satisfactory effort is made by the taxpayer to resolve the tax debt. The levy is the most aggressive collection action of the IRS. The IRS may levy property and/or assets such as house, car, boat, wages, retirement accounts, bank accounts, dividends, income from rent, accounts receivables, licenses, commissions, the cash loan value of your life insurance, state tax refund, etc.
It is advisable to make resolution efforts as early as possible. The IRS sends the notice of levy Final Notice of Intent to Levy and Notice of Your Right to A Hearing at least 30 days before the levy. This is the last chance to resolve the tax debt. Once those 30 days have passed, the IRS can levy your property or assets at anytime.