Newland's Business Notes

Primer on Liens, Levies and Garnishments

Volume 10 Issue 5 -- September/October 2006

What happens when the Internal Revenue Service (IRS) comes to collect on a tax liability? At that time, you will likely hear a number of unfamiliar terms, such as “lien,” “levy” and “garnish.” Understanding what happens in these situations requires knowing what these important words mean.

Lien, in simplest terms, is the right to have property sold to pay a debt.

Levy means to seize or collect funds or assets by legal authority;

Garnish generally means setting aside or holding a sum of money to satisfy a debt.

Each of these three terms can be thought of as a different aspect of the rights available to a creditor, such as the IRS, to enforce or collect a right to payment. In the case of a particular taxpayer or tax debt, any or all of these terms may come into play.


Unlike  “levy” and “garnishment,” a lien does not necessarily involve the IRS getting paid immediately. Instead, a lien formally recognizes the IRS’s right to payment. A federal tax lien arises in favor of the IRS whenever a taxpayer fails to pay any tax after a demand for payment has been made.

The tax lien applies to all property that a taxpayer owns, both at the time the lien arises and any time thereafter. Usually, before the IRS can actually collect the money due it, it must take certain additional steps to enforce the lien. That is where levy and garnishment come in.

The IRS is not required to obtain a lien in the way most creditors are required to obtain this right.  The IRS only has to serve the taxpayer by certified mail a Notice of Intent to File a Tax Lien in order to recognize its rights.

The lien is usually recorded in the court house in the jurisdiction where the taxpayer lives and is the official notice of the debt. Lien filings are reported by credit agencies and will probably adversely affect a taxpayer’s credit rating.

Although the tax lien applies to both personal property and real estate, tax liens have perhaps their most visible effects on real estate. Because the lien attaches to the property, it does not matter who owns it. As a result, once a tax lien is recorded, it will be virtually impossible to sell that piece of property without getting the lien released or paying off the tax claim. Any buyer of your property would face the risk of having the IRS take the property to pay your tax debt.

Levy and Garnishment

Levy and garnishment are two different ways that the IRS can get paid immediately. Levy and garnishment are, in effect, the methods that the IRS uses to enforce or collect upon its tax lien.

The State of Virginia uses some very unusual language in collecting Virginia taxes.  It is common for Virginia tax officials to refer to a tax levy or garnishment as a “lien.”  The Virginia tax form refers to a levy as a “Notice of Lien and Demand for Payment.”  “Demand for Payment” is the key phrase here, and it means “levy.”

Suppose an IRS collection officer, called a “Revenue Officer (R/O),” named Will Grabit, is assigned to collect your tax debt. This is where R/O Will Grabit confronts a taxpayer. 

When the IRS finds assets such as bank accounts or other types of assets, it will sometimes serve a levy on them and grab (seize) the taxpayer’s assets. The IRS will then sell any non-cash assets to pay the debt.

If the IRS decides to levy on the taxpayer’s bank account, R/O Grabit will issue an IRS levy to a bank. Whatever taxpayer funds are in the bank account are frozen for 21 days during which time the taxpayer can attempt to get the levy released. 

If no relief can be obtained from the IRS, at the end of the 21-day period the bank must pay to the IRS whatever money was in the bank account (up to the levy amount at the time the levy was served).

What if the taxpayer, Donna Fault (D. Fault) does not have a bank account, but has a job.  The IRS, upon learning of the job, may file a wage garnishment, which means that a portion of D. Fault’s wages each pay period will be sent to the IRS.

If you owe a substantial amount of money to the IRS or the state of Virginia , you may want to contact our office for assistance.

Copyright 2006

Published by the law firm of Newland & Associates, PLC
9835 Business Way
Manassas, VA 20110
Call us at (703) 330-0000 for a full range of business law and tax-related services.

While designed to be accurate, this publication is not intended to constitute the rendering of legal, accounting, or other professional services or to serve as a substitute for such services.

Redistribution or other commercial use of the material contained in Newland's Business Notes is expressly prohibited without the written permission of Newland & Associates, PLC.

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