What Is The Difference Between A Tax Levy And A Tax Lien In North Carolina And South Carolina?

In this article, you will discover:

• How federal tax liens affect your property in the Carolinas.
• How an IRS tax levy differs from a lien.
• How to stop or reverse a tax levy or lien in the Carolinas.

What Is A Federal Tax Lien, And How Does It Affect My Property?

A federal tax lien is the government’s legal claim against all of your property, including after-acquired property, if you fail to pay the taxes that the IRS has assessed. The government perfects that lien, or makes it enforceable, by filing a Notice of Federal Tax Lien in the county where you live.

That notice alerts the public and all third parties that you have tax liabilities. The process is the same in North Carolina, South Carolina or anywhere in the United States: the government files a federal tax lien, and then your property is subject to it.

Anybody looking to purchase your property does so subject to that lien. They can no longer be a bona fide purchaser without notice, as an active lien is in place.

The lien will attach to all of your assets and any assets you subsequently acquire while it is in place. It affects your ability to sell the property because you’ll have to address the lien if you do.

A lien can affect your credit and your purchasing power. It can even force you into bankruptcy.

It’s also worth noting that a lien’s priority is determined by when it was filed. Specifically, if there are other liens on your property filed before the federal lien, they take precedence.

What Is An IRS Tax Levy, And How Does It Differ From A Lien?

A levy is the actual seizing of property or the rights to the property to collect on the tax itself. The government is taking action to garnish your wages, levy your bank accounts, or seize a car or real estate, after providing notice and due process rights.

A lien is the legal claim that secures the debt. It arises once you have an assessment and notifies third parties that you owe this debt. The key difference is that a lien secures the debt, while a levy takes property away from you.

At What Stage In The IRS Collection Process Do Tax Liens Occur?

A lien arises when the IRS assesses tax, and you don’t pay it. Once the IRS records the lien, it remains in place and serves as public notice. A lien can occur at any stage of the collection process, and liens are usually issued earlier than any levy.

Once recorded, a lien lasts for 10 years, the same amount of time that the IRS has to collect on your debt after assessment. The IRS can extend that lien by refiling it before the 10-year period elapses.

The IRS can also extend the collection of your debt by filing a lawsuit to reduce the lien to a judgment. This is done by filing a lawsuit against you in district court. Once a lien is reduced to a federal judgment, the IRS will have a judgment lien for the amount of the tax lien, and they’ll have it for another 10 to 20 years, if they want.

How Can I Stop Or Reverse A Tax Lien Or Tax Levy?

The following tools are available to stop tax liens or tax levies:

1. Paying The Lien In Full. The IRS must release a lien within 30 days after the liability is satisfied.
2. The Lien Becomes Unenforceable. A lien is extinguished after 10 years (the “collection statute expiration date”), and the IRS can no longer collect it thereafter. The IRS must withdraw, reverse or release the lien. There are also times when the IRS will withdraw or reverse the lien if it was improperly filed or due to an administrative error, even if you still owe the tax.
3. Proving that removal of the lien will facilitate debt payoff or loan approval. Sometimes, if you can prove to the IRS that removing the lien will facilitate collection of the debt or obtaining a loan that will facilitate collection, the IRS will reverse or withdraw the lien.
4. Paying In Installments. The IRS will also release a lien if you enter into a qualifying direct debit installment agreement. You qualify if you can pay the debt over a specified period, and the debt is under a specific amount.
5. Applying For A Certificate Of Discharge. There are circumstances where you can apply for a certificate of discharge. A discharge of the lien occurs when a taxpayer attempts to sell real estate subject to a federal tax lien. The discharge allows you to pass a free, clear title to the buyer if you agree that whatever profit you would have obtained from that sale will go to paying down your tax debt.
6. Subordination Of A Tax Lien. The government may also agree to subordinate the lien, allowing a bank’s loan to take priority. This subordination can allow you to access some of the property’s equity through a loan and use those funds to reduce your tax liability. Because the loan proceeds go toward paying the tax debt, the government is often willing to allow the bank’s loan to take priority over its lien.
7. Economic Hardship. Sometimes, if you’re enduring economic hardship and can’t afford to meet your personal and necessary living expenses, the government will stop a levy.
8. Offer In Compromise. If a levy hasn’t taken place yet, you can file an Offer in Compromise, where the government allows you to pay less than the full amount of your tax debt. The government can’t impose a levy on your property while a settlement agreement is pending.
9. Requesting A Collection Due Process (CDP) Hearing Or Collection Appeals Program (CAP) Appeal. Requesting a collection due process hearing within 30 days from date of notice can prevent a levy from happening. Additionally, filing an appeal through the Collection Appeals Program could stop or pause a levy. The CAP appeal is often quicker to resolution, however, the IRS could still issue a levy and there is no potential for judicial review.

How Can Early Legal Intervention Prevent IRS Collection Actions From Escalating?

Consulting an attorney who handles tax resolution work is the best strategy to prevent IRS collection actions. During an initial consultation, your attorney will tell you where you stand and whether they can help.

There are immediate steps you can take to stop levies and liens, including:

Early Engagement

You need to be engaged early in the collection process. Prompt responses to notices and bills are essential. If you can’t afford the payment amount, try to get into an installment or payment plan to stop the government from filing tax liens and levies.

Staying Current on Filings And Paperwork

Stay current with all your unfiled or missed tax returns. Get them filed. If you’ve received inaccurate assessments, take proactive steps to resolve them as soon as you can.

If you’re in danger of being levied, submit an Offer in Compromise if you qualify or request an installment agreement.

Protecting Your Appeal Rights

A Collection Due Process hearing can halt collection actions. If you miss the 30-day deadline for requesting a hearing, you can file for an Equivalent Hearing. Typically, the government addresses the Equivalent Hearing before it levies anything.

Still Have Questions? Ready To Get Started?

For more information on the difference between tax liens and tax levies, an initial consultation is your next best step. Get the information and legal answers you are seeking by calling (803) 771-9800 or (980) 677-1099 today.