A lien is a claim on property to satisfy a debt. Federal law gives the IRS an automatic lien on a taxpayer's property when a taxpayer is notified of a tax liability and does not pay within 10 days. A Notice of Federal Tax Lien informs the public and the taxpayer's creditors that the IRS has a claim against all property owned by the taxpayer. A lien notice is generally filed in counties where the taxpayer resides or owns property.
A levy is the seizure of property to satisfy a tax debt. The IRS may seize and sell any type of property, including real property, personal property, wages and bank accounts. The IRS must give 30 days notice before placing a levy on a taxpayer's property. Banks must hold accounts for 21 days before surrendering levied funds to the IRS.
Property exempt from levy: (IRC SS6334):
--Apparel and school books as are necessary for the taxpayer or members of the family
--Personal household effects (up to $10,090 for 2022).
--85% of wage replacement payments (unemployment, workers' compensation, welfare, disability, pension).
--Certain service-connected disability payments
--Public assistance payments
--Income needed to pay court-ordered child support.
--Weekly income equal to the standard deduction and personal exemption divided by 52.
--Business or trade property (up to $5,050 for 2022). Property used in the taxpayer's trade or business can only be seized if an IRS district director or assistant determines that the taxpayer's other assets are insufficient to pay the liability.
--Main home if tax, interest and penalties are $5,000 or less. Written court approval is required for seizure of a residence.
Collection from Retirement Accounts:
Among the assets the IRS considers available to pay taxes due are funds in a taxpayer's IRA, Keogh, SEP or 401(k) plan. A collections officer may ask the taxpayer to withdraw funds to pay the tax liability. The IRS may attach a taxpayer's 401(k) retirement account even if state law says the funds are immune from the claims of creditors.
The 10% early withdrawal penalty will not apply to distributions due to an IRS levy on the qualified plan or IRA. The waiver of penalty will not apply if the taxpayer withdraws funds to avoid a levy or to satisfy a levy on other property.
Revocation or Denial of Passport:
Fixing American's Surface Transportation (FAST) Act. The FAST Act authorizes the IRS to certify to the Department of State that a taxpayer owes more than $55,000 (2022).
CP508C Notice. The IRS sends a taxpayer a CP508C Notice to inform the taxpayer that his or her tax debt is seriously delinquent and has provided that information to the Department of State. In this case, the Department of State generally will not issue or renew a taxpayer's passport and may revoke or place restrictions on the passport.
Taxpayer Options: Generally, the IRS will not recommend revoking a taxpayer's passport if the taxpayer is making a good faith effort to resolve his or her tax debts. Frequently a taxpayer will qualify for one of several relief programs including a payment agreement with the IRS or an offer-in-compromise.
Appeal Rights -- Liens, Levies and Seizures:
Taxpayers subject to a lien, levy or seizure will receive IRS Publication 1660, Collection Appeal Rights, which explains the taxpayer's rights and procedures for requesting an appeal. The two main procedures for appealing a collections action are Collection Due Process (CDP) (file Form 12153, Request for a Collection Due Process Hearing), and the Collection Appeals Program (CAP)(file Form 9423, Collection Appeal Request).
CDP is only available when the IRS places a lien or levy on the taxpayer's property. The IRS' decision in a CDP hearing can be appealed in court. The CAP process is available for additional collection actions and is generally quicker than the CDP process. However, the CAP decision is binding. The taxpayer cannot go to court to appeal it.