Congress has granted the IRS 2 very efficient methods of enforcing its collection rights: the federal tax lien and the levy. As the IRS continues to strengthen their policy of enforcement, the taxpayer will most likely be faced with both of these methods of enforcement if the taxpayer fails to pay. Levies can be divided into 2 categories. The first are levies directed to the taxpayer and covering property owned by the taxpayer (sometimes called a seizure). The second category is levies served on third parties who hold intangible property belonging to the taxpayer (such as bank deposits and wages).
The IRS’ power to levy is expansive and does not require the IRS to go to court. Persons other than the IRS can be served with a levy, such as banks and life insurance companies where the life insurance has a cash surrender value. The property which is subject to a levy is that which is in existence on the date of the levy. There are some exceptions, such as for a continuing wage levy. Most wage levies (including social security) are capped at 15%, however for federal vendors, wages can be levied at 100%.
The federal tax lien attaches to the taxpayer’s property as of the date of the assessment, as well as all property and property rights subsequently acquired by the taxpayer. Three requirement must be met before a valid tax lien occurs: (a) A valid tax assessment must be made; (b) The taxpayer must be given notice and demand for payment within 60 days of the assessment; (c) The taxpayer must fail to pay the amount assessed. Notice that recording the lien is not one of the requirements.
In many states, such as Florida, the homestead exemption protects the debtor’s principal residence from creditors. However, this does not prevent the attachment of a federal tax lien. Thus, the IRS can in exceptional circumstances order the sale of a primary residence, even in a homestead protected state, such as Florida.
Once the lien is filed, it continues for the entire period that the IRS can collect the tax. Generally, the lien is not released until the tax is paid. However, there are certain situations when a lien will be released, even if it has been properly filed. Those situations include the following: certificate of release of paid or unenforceable lien; certificate of discharge; certificate of subordination and certificate of nonattachment.
Clearly, as in most situations where you are dealing with the IRS, it is best to address your issues with them, before you are faced with a levy or a lien. However, if you are served with notice of a levy or a lien, your next best alternative is to contact a local professional who is familiar with dealing with the IRS and can help you by taking the stress and worry out of navigating the complicated IRS system!
As a local Sarasota Tax Attorney concentrating in IRS Problem Resolution, I can help release your IRS liens & levies or negotiate a settlement to your IRS tax problems. Please call the Law Office of Mary E King for your free consultation at 941.906.7585 .