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.
Under Internal Revenue Code § 6321, a lien automatically arises when:
At that point, the lien attaches to:
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:
Once levied, the funds or assets are applied directly to your tax balance.
| 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 |
Even though a lien does not seize property, it can financially paralyze you.
Because the lien attaches to future assets, even property you acquire later can be encumbered.
Levies are immediate and financially disruptive.
If the IRS levies your bank account:
A wage levy is continuous:
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.
A lien does not last forever.
Once released, the IRS issues a Certificate of Release of Federal Tax Lien.