Many taxpayers who contact my office are worried about the IRS lien. The recorded IRS lien is really just a big notice to the world that the IRS is owed money. The lien doesn't cause an asset to be taken by the IRS on it's own.
The law does provide the IRS the ability to sieze property and at least initially, this issue should be the one taxpayers are most concerned about.
Usually, an IRS levy is made against a paycheck or a bank account. They can also be issued and used to sieze property like cars, business equipment, and other items. In theory and with a few exceptions laid out below, the IRS can take just about anything you own including your home. It may be irrelevant as well how that property is held, i.e whether it is a community or jointly held asset – it may still be up for grabs.
A levy on a paycheck reduces the net income dramatically. Most income is taken by a wage levy. A few weeks of this and a typical taxpayer can lose their home, fall behind on other debts and end up in bankruptcy.
A levy on a bank account is a bit more “hit and miss” for the IRS. If there is a substantial sum of money in the account on the date the bank recieves the levy – that amount is frozen and held for 21 days before being distributed.
This gives the taxpayer a chance to work something out. Often, the bank account has a lower amount of funds or none at all and the bank levy has to be issued again in hopes that the taxpayer will use that account again and leave money in it.
Paychecks are a more reliable source of revenue for the IRS.
Thankfully, congress has placed a few procedural roadblocks in front of the levy power of the IRS. See IRC Section 6330.
In essence, before the IRS can take property or money, it must give the taxpayer a written notice of intent to levy with a letter that explains the taxpayer's appeal rights. This notice is called a “final notice of intent to levy”.
This letter has to be personally delivered, left at the home, or sent by certified mail to the last known address. If not, then subsequent levy is invalid and can be undone.
In almost every circumstance this notice has to be given more than 30 days before any siezure can be made.
The taxpayer has that 30 days to file an appeal. This Appeal is called a “collection due process appeal” The appeal filing stops the process and provides a path for the taxpayer to challenge the levy activity in front of an appeals officer and than all the way to the U.S. Tax Court if necessary.