IRS updates publication on collection process
The IRS has updated IRS Publication 594, 1/2006, What You Should Know About The IRS Collection Process. The publication provides information on the steps that the IRS may take to collect overdue taxes. It includes discussion of liens and levies.
Liens. the IRS issues a lien to obtain a legal claim on property as security for payment of a tax debt. A federal tax lien arises when:
- The IRS assesses a liability,
- The IRS sends a taxpayer a notice and demand for payment, a bill that tells the taxpayer how much he owes in taxes, and
- The taxpayer neglects or refuses to fully pay the debt within 10 days after IRS notification.
With the filing of a Notice of Federal Tax Lien, a taxpayer's creditors are publicly notified that the IRS has filed a claim against all of a taxpayer's property, including property acquired after the lien was filed. The lien attaches to all of the taxpayer's property (such as his house or car) and to all rights to property (such as accounts receivable, if the taxpayer is an employer).
The IRS will issue a Release of the Notice of Federal Tax Lien within 30 days after: (1) the taxpayer has satisfied the tax due (including accrued interest and penalties and other additions) by paying the debt or by having it adjusted, or (2) the IRS has accepted a bond from the taxpayer that guarantees payment of the debt.
The publication also includes sections on: (a) applying for a discharge of a Notice of Federal Tax Lien, (b) withdrawing liens, and (c) appealing the filing of a lien. Levies. A levy is a legal seizure of a taxpayer's property to satisfy a tax debt. Levies are different from liens. A lien is a claim used as security for the tax debt, while a levy actually takes the property to satisfy the tax debt. The IRS usually levies only after these three requirements are met:
- The IRS assessed the tax and sent the taxpayer a Notice and Demand for Payment,
- The taxpayer neglected or refused to pay the tax, and
- The IRS sent the taxpayer a Final Notice of Intent to Levy and a Notice of Your Right to A Hearing (levy notice) at least 30 days before the levy.
If the IRS levies a taxpayer's wages or federal payments, the levy will end when: (i) the levy is released, (ii) the taxpayer pays the tax debt, or (iii) the time expires for legally collecting the tax. If the IRS places a levy on the taxpayer's bank account, the levy attaches deposits that have cleared and funds that are available for withdrawal when the levy is received, up to the amount of the levy. The bank must wait until 21 days after a levy is received before sending the money. The holding period allows taxpayers time to resolve any issues about account ownership. After 21 days, the bank must send the money, plus, if applicable, any interest earned on that amount.
The publication also includes sections on: (a) releasing a levy, (b) returning levied property, and (c) filing a claim for reimbursement when the IRS makes a mistake in levying an account.