A tax lien and a tax levy are both parts of the tax collection and enforcement machinery operated by the Internal Revenue Services (IRS). The most ordinary situation you might encounter in such devices is the tax deed. Tax deed property is a scenario where the Government entities take ownership of the legal documents of property on account of tax dues.
The active management of properties that the Government owns from exercising levies and liens will lead the way to tax deed investing. It will cause a change in the dynamics of the property ownership and handling where federal charges will change to a statewide condition.
Despite the risks of buying tax deed properties, it is an active market stemming from a constant inflow of tax liens & levies across the nation. The problem begins if you receive an unfiled tax return from the IRS. It is strictly against the law and not advisable for citizens to receive one to boost their best interests.
This article explores the primary differences and points of distinction between the federal tax levies & liens.
What Are Tax Liens & Tax Levies?
The tax lien is a security measure aiding the Government in a legal claim against your property. It occurs in the case of non-payment or negligence on your part regarding your tax debt. All of your property is subject to such non-payment liabilities & collectively protects the interests of the Government.
The claim is perfectly legal & the Government has full authority to take definitive action against the creditors using this device. The best way to avoid a tax lien is to pay your taxes on time and other techniques like property discharge, subordination, and withdrawal.
According to the IRS records, the federal levy is more critical than the lien. In a levy, the actual property acquisition will happen & seizure of your property is a certainty. It is different from the scenario of a lien where only Government interest in your property takes center stage.
The next segment analyses the peak differences between tax levies and tax liens.
Primary Differences Between Federal Tax Liens & Levies
The points of difference between a tax levy & a tax lien can happen on two fronts, the general definition & the procedural requirements. Taxpayers across the country cite many concerns regarding understanding the default differences between these two.
- General Classification Differences
- A tax lien stems primarily from the neglect or refusal to pay taxes on behalf of the creditor. It will raise considerable interest from the Government for your property. The levy does more damage by making your property liable to undergo seizure, sales, investment outsourcing, and the like.
- A tax lien will have a more adverse impact on your credit score compared to levies. The problem is not just your financial aspects, as factors like a job or material ownership could be affected. The levies do not have a public standing like liens & will not leave a mark on your credit score.
- You can opt for settlement when it comes to your federal tax lien. It will ease the legal handling process of the whole ordeal & will ensure a smoother payout option for you. Levies have a final outlook about it, making it harder to retrieve the damage from the initial scenario.
- The organization problem is more for levies rather than liens. It is because of high-impact parameters like asset seizure and physical management of the property in question.
- The filing and hearing process is not mandatory for filing a lien as the Government is not looking forward to advancing the device until the final stage with immediate effect. For levies, this choice is not available on the same scale.
Both liens & levies are methods used by the IRS but follow a structural difference in their execution and various applications. A general user perspective needs to know about the vital difference to understand their rights and duties regarding the same.
- Distinction In Procedural Requirements
- The fundamental window of opportunity representing the time for you to reply to a lien or levy is 30 days. However, the right to appeal in case of lien is thirty days after filing, & for levy, it is thirty days before filing. Be more proactive about the federal tax lien as it is final.
- The possibility of an administrative appeal & its potential consideration exists among the tax authorities as the attempts to outreach to your attention are frequent for both devices. But the activity level and the mode of outreach functions may vary for liens and levies.
Conclusion
Once your property receives the criteria for a lien or levy, the federal tax department will transfer the claim to the Government interest. From there, it could end up in different types of tax deed investing or tax lien investing, as per the property valuation. The optimal way for you to tackle all these is by not failing to clear your tax payments according to the law.
