Tax Lien vs. Levy: How They Affect Your Business

When you can’t pay your back taxes and you don’t respond to the collection notices or summons from the IRS, a tax lien or a levy can be slapped upon your assets. These two debt collection instruments are often confused with each other, quite understandably given that their differences aren’t too stark.

What Do Tax Liens Entail?

In a federal tax lien, the IRS has a claim on your business asset to use it as a collateral, so if it is sold, they can collect your debt from the proceeds.

How Does a Tax Levy Differ?

When a levy is issued by the IRS, they can actually seize your property and sell it to satisfy your balances.

In either of the two, the debtor loses control and rights to his/her property and any proceeds or profits that come from its sale (unless the sale price turns out to be more than the tax debt and penalties). Although the business owner can appeal this, a tax lien or levy is obviously something that any business owner would want to avoid, especially since the company they built is on the line.

One way to prevent or remove them is by settling your debt through an offer in compromise. Should you qualify, you can clear your debt with a reduced amount. An IRS tax lawyer can help you in the application and negotiation with the federal agency, so you can prevent having a lien or levy issued, or have your seized assets released.