When you owe the IRS money, two of the most powerful collection tools they can use are a federal tax lien and a tax levy.
Many taxpayers, and even some not so smart professionals, use these terms interchangeably. That is a costly mistake.
Understanding the difference between a tax lien and a tax levy can be the deciding factor between protecting your assets and losing them.
A federal tax lien is the government’s legal claim against your property when you fail to pay a tax debt.
It does not mean the IRS has taken anything—yet.
Instead, it secures the government’s interest in your assets, similar to how a mortgage secures a lender’s interest in your home.
How a Tax Lien Arises
Under Internal Revenue Code § 6321, a lien automatically arises when:
- The IRS assesses the tax
- Sends a Notice and Demand for Payment
- You fail to pay the balance
At that point, the lien attaches to:
- Real estate
- Personal property
- Business assets
- Future assets acquired while the lien is active
A tax levy is when the IRS actually takes your property to satisfy the debt.
If a lien is the warning shot, a levy is the cannon.
Under IRC § 6331, the IRS has authority to seize:
- Bank accounts
- Wages (garnishments)
- Social Security benefits
- Accounts receivable
- Vehicles
- Real estate (in extreme cases)
Once levied, the funds or assets are applied directly to your tax balance.
Tax Lien vs. Tax Levy
| Feature |
Tax Lien (The Claim) |
Tax Levy (The Seizure) |
| Definition |
Legal claim securing the tax debt |
Actual seizure of property |
| Action |
“Locks” your assets |
“Takes” your assets |
| Property Impact |
Prevents sale/refinance easily |
Removes funds/property |
| Credit Impact |
Shows in title searches/lender due diligence |
Immediate financial loss |
| Notice Issued |
Notice of Federal Tax Lien (NFTL) |
Notice of Intent to Levy |
| Severity Level |
Collection warning stage |
Active enforcement stage |
Real-World Impact of a Tax Lien
Even though a lien does not seize property, it can financially paralyze you.
Common Consequences
- Mortgage refinancing denied
- Home sale proceeds held at closing
- Business loans rejected
- Damaged borrowing power
- Title transfer complications
Because the lien attaches to future assets, even property you acquire later can be encumbered.
Real-World Impact of a Tax Levy
Levies are immediate and financially disruptive.
Bank Levy Example
If the IRS levies your bank account:
- Funds are frozen for 21 days
- You cannot access the money
- After 21 days, funds are sent to the IRS
Wage Levy Example
A wage levy is continuous:
- A portion of every paycheck goes to the IRS
- Continues until debt is paid or released
- Leaves only an exempt survival amount
How to Stop a Levy
1. Installment Agreement
Entering a payment plan can halt levy action.
2. Offer in Compromise
Settles the debt for less and stops collections during review.
3. Currently Not Collectible (CNC)
Proves hardship and suspends enforcement.
4. Lien Subordination
Allows refinancing or property sale despite the lien.
5. Collection Due Process (CDP) Hearing
Filing within 30 days legally pauses levy enforcement.
How to Remove or Release a Tax Lien
A lien does not last forever.
Removal Options
- Full payment of the debt
- Offer in Compromise acceptance
- Lien withdrawal (Form 12277)
- Discharge of specific property
- Expiration of the collection statute (CSED)
Once released, the IRS issues a Certificate of Release of Federal Tax Lien.
Citations & Authority
