Do You Have Unpaid Taxes? If So, You Need to Know How to Deal With Liens and Levies

African Professional Chartered Accountant Woman Doing Tax.
AndreyPopov / Getty Images/iStockphoto

Early in the pandemic, the IRS threw the American people a life preserver when they suspended all liens, levies and seizures in an effort called the “People First Initiative.” But that moratorium ended July 15, 2020 and many Americans who may have counted on it are wondering what to do if they’ve had trouble paying back taxes (or expect they’ll have trouble after one of the rockiest years for personal finances in U.S. history).

Weigh In: Do You Support a Biden Tax Increase? Take Our Poll
Learn More: Here’s the Average IRS Tax Refund Amount by State

Levies are liens are complicated tax terms – so what do they mean? According to the IRS website, a levy is a legal seizure of your property to satisfy a tax debt. Levies are different from liens. A lien is a legal claim against your property to secure payment of your tax debt, while a levy actually takes the property to satisfy the tax debt. A federal tax lien comes into being when the IRS assesses a tax against you and sends you a bill that you neglect or refuse to pay it. The IRS files a public document, the Notice of Federal Tax Lien, to alert creditors that the government has a legal right to your property. You have the right to appeal if the IRS advises you of the intent to file a Notice of Federal Tax Lien.

Make Your Money Work

In data compiled by Solvable and GOBankingRates, over the past 10 years, the IRS has filed 7.3 million liens against taxpayers. This number peaked in 2010, with 1,096,376 tax liens filed. Since then, the number steadily decreased year-over-year, dropping by 50% by 2019. In 2019, for the first time in 8 years, the number of tax liens filed exceeded the year prior.

This drop in tax liens filed in 2011 coincided with the introduction of the Fresh Start Program, which changed the process for federal tax lien filings, according to Solvable and GOBankingRates. Under this program, the IRS can only file a tax lien against taxpayers who owe $10,000 or more.

In addition, the IRS will not file a lien against those who owe less than $50,000 and have set up a streamlined installment agreement to cover their balance owed; and it also helps taxpayers deal with existing tax liens.

Explore: Doing Your Own Taxes? Make Sure You Follow These 15 Tips
Discover: What Is a Tax Levy and How Can You Prevent It?

In a memo to all collections officers on July 10, 2020 about the expiration of the People First Initiative, Fred Schindler, director, IRS Collection Policy, said that while the PFI suspension period may be ending, the operations “will not immediately return to the pre-pandemic normal.”

Make Your Money Work

“We must first work through backlogs in processing incoming mail, and in sending outgoing notices. There will be special considerations regarding meeting with taxpayers and practitioners in IRS offices or in the field,” he wrote in the memo. “Finally, where we do initiate enforcement actions, we need to apply good judgment in recognition that some taxpayers have been significantly impacted by economic factors caused by the COVID-19 pandemic,” he added. “The Internal Revenue Manual provides employees with the necessary authorities and discretion to appropriately handle unusual situations and situations where taxpayers are experiencing an economic hardship.”

According to Tax Fortress, individuals should be more vigilant about whether they are taking the proper steps to resolve their tax balances since the suspension has been lifted. “In particular, for those individuals who have large tax liabilities, the IRS has not been compassionate since the moratorium on levies ended July 15th,” Tax Fortress says.

Related: What Are Tax Liens?
Read More: How To Itemize Deductions Like a Tax Pro

But there are several options to paying past-due tax debt that could apply after the end of the IRS suspension.

Make Your Money Work

One such solution is the federal programs called the Offer in Compromise, which allows taxpayers to settle their tax obligation for less than they actually owe. The IRS says on its website that this may be a legitimate option if you can’t pay your full tax liability or doing so creates a financial hardship. The IRS considers a unique set of facts and circumstances, including the ability to pay; income; expenses; and asset equity. Effective April 27, 2020, the application fee is $205.

The IRS accepted about one-third of the offers in compromise that it received in 2019, which is less than prior years, but more than 10 years ago, according to Solvable and GOBankingRates. Between 2013 and 2018, 40-43% of offers were accepted, while in 2009, only 21% of offers were accepted, according to the Solvable and GOBankingRates data.

In addition, the total value of all offers in compromise accepted was $289 million in 2019, compared to $157 million in 2009, representing an 84% increase.

John Boyd, principal of the management consulting firm, The Boyd Company, tells GOBankingRates that while compromises are usually rejected by the IRS, applying is a smart move for low income Americans.

“The application fee is not only waived if you are low income – but also monthly payments while your compromise application is being considered. The application process can be difficult – so utilizing the Tax Assistance Program is smart for the poor and the elderly,” Boyd says.

Learn: How To Minimize Tax Debt
Discover: Here Is the Difference in Tax Burden Between the Rich and Poor in Every State

Money Crashers’ Brian Martucci echoes the sentiment, saying that an offer-in-compromise is “easier said than done. Most taxpayers don’t qualify for either,” he tells GOBankingRates.

“You should absolutely consult a tax professional who’s well-versed in IRS negotiations, but don’t bet on being able to settle – you’ll need to prove that the IRS will collect more from you in a settlement than during the 10-year statute of limitations to pay past-due tax debt,” Martucci says.

Another available option is requesting a not collectible status, “another powerful tool available to those in financial distress,” according to Boyd.

“While it is a temporary designation, usually six months to two years, it offers the opportunity to get IRS collectors off of your back until your financial situation improves,” Boyd says.

There is also the option of paying in full within 120 days, says Money Crashers’ Brian Martucci.

“The simplest option is to pay in full within 120 days if you can afford to do so. You’ll continue to incur penalty interest until the debt is paid, so it’s in your best interest to pay as quickly as possible, but you won’t incur any additional fees or penalties if you use up the allotted time,” Martucci tells GOBankingRates.

Finally, there are installment plans, which “is your best bet for satisfying your entire debt on a longer time frame,” Martucci says.

See: 6 Things Every Homeowner Should Know About Property Taxes
Find: What the Richest 1% Pay in Taxes in Your State

Boyd adds that most tax experts “will advise that you set up an installment plan over the longest time possible, 72 months, with the lowest monthly payments.”

More from GOBankingRates

Share this article:

facebook sharing button
twitter sharing button
linkedin sharing button
email sharing button
Make Your Money Work

About the Author

Yaël Bizouati-Kennedy is a full-time financial journalist and has written for several publications, including Dow Jones, The Financial Times Group, Bloomberg and Business Insider. She also worked as a vice president/senior content writer for major NYC-based financial companies, including New York Life and MSCI. Yaël is now freelancing and most recently, she co-authored  the book “Blockchain for Medical Research: Accelerating Trust in Healthcare,” with Dr. Sean Manion. (CRC Press, April 2020) She holds two master’s degrees, including one in Journalism from New York University and one in Russian Studies from Université Toulouse-Jean Jaurès, France.
Learn More


See Today's Best
Banking Offers