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The certified mail arrives from the IRS: "Notice of Federal Tax Lien." Your business owes $85,000 in back taxes, and the IRS has filed a public lien against all your assets. Within 48 hours, your bank calls—they've discovered the notice of federal tax lien during a routine credit check and are freezing your business line of credit. Your equipment vendor cancels your net-30 terms, demanding cash on delivery. A potential client Googles your business name and finds the public notice of federal tax lien filing, then awards the contract to a competitor. Your credit score drops 100 points. All this happens before you've even opened the envelope.
You call your accountant in panic. He says, "You should have responded to the previous IRS notices." You discover there were five notices over six months—Notice of Balance Due, First Notice, Final Notice of Intent to Levy, and Notice of Federal Tax Lien Filing—all of which you ignored, assuming they were "just threats." Wrong. IRS collection notices follow a specific escalation sequence, and ignoring them triggers automatic collection actions that devastate your business.
Understanding IRS tax liens and IRS tax levies determines how tax liens damage your credit, business relationships, and financing ability for years, when the IRS can seize your bank accounts, wages, accounts receivable, and assets through levies, what rights you have to challenge or appeal collection actions before they occur, and how to get liens withdrawn and levies released once they've been filed. Here's what you should know about what federal tax lien filings are and how they differ from levies, the IRS collection notice sequence and your rights at each stage, how to prevent liens from being filed or get them withdrawn after filing.
Federal tax liens vs levies: Critical differences
Many business owners confuse IRS tax liens and IRS tax levies. They're completely different collection actions with different impacts.
What is a federal tax lien?
A federal tax lien is a legal claim against all your current and future property when you owe unpaid taxes. The lien is the IRS's security interest in your assets—similar to a mortgage on real estate.
What liens affect: IRS tax liens attach to all property and rights to property you own or acquire:
- Real estate (homes, commercial property, land)
- Personal property (vehicles, equipment, inventory)
- Financial assets (bank accounts, investment accounts, retirement accounts)
- Intangible assets (accounts receivable, intellectual property)
- Future acquired property (anything you acquire while the lien is in effect)
Public record: The IRS files a Notice of Federal Tax Lien with county recorders and state offices, making the lien a public record. Anyone can search and find it, including banks, vendors, potential clients, and credit bureaus.
Impact on credit: IRS tax liens severely damage credit scores (typically dropping scores 100+ points) and appear on credit reports, making it difficult to obtain financing, credit cards, or favorable vendor terms.
Priority: Federal tax lien filings generally have priority over most other creditors who file after the IRS lien, meaning the IRS gets paid first if assets are sold.
Duration: IRS tax liens remain in effect until the tax debt is paid in full or the collection statute expires (generally 10 years from assessment), unless the IRS agrees to withdraw or release the lien earlier.
What is a levy?
A levy is the actual seizure of your property to satisfy tax debt. While a federal tax lien is a claim, an IRS tax levy is the IRS taking your assets.
What the IRS can levy:
- Bank accounts (the IRS seizes all funds in accounts up to the amount owed)
- Wages and salary (the IRS requires your employer to send a portion of your wages directly to the IRS—garnishment)
- Accounts receivable (the IRS requires your customers to pay the IRS instead of you)
- Social Security benefits
- Retirement accounts (401k, IRA)
- Real estate and vehicles (the IRS can seize and sell property, though this is less common)
- Business assets and inventory
No public record: IRS tax levies are not public records (unlike liens). Only you, the IRS, and the party holding your assets (bank, employer, customer) know about the levy.
Immediate impact: IRS tax levies have immediate financial impact—funds are frozen or seized immediately, often within 24 hours of the IRS issuing the levy.
Duration: Bank account levies are one-time seizures of funds in the account on the date of levy. Wage levies continue until the IRS releases the levy or the debt is paid in full.
Summary: Lien vs levy
Lien: Legal claim on property, Public record, Damages credit prevents you from selling/refinancing assets without paying the IRS does not immediately take your assets.
Levy: Seizure of property. Not public. Immediately takes your money/assets. Can freeze bank accounts, garnish wages, and seize assets for sale.
The IRS typically files IRS tax liens first, then issues IRS tax levies if the debt remains unpaid. However, the IRS can levy without filing a lien in some situations.
The IRS collection notice sequence
The IRS follows a specific sequence of notices before taking collection action. Understanding this sequence and your rights at each stage is critical.
Notice 1: CP14 Notice (Initial balance due)
When sent: Within a few weeks after you file a return showing a balance due or the IRS assesses additional taxes.
What it says: You owe $X in taxes, penalties, and interest. Payment is due within 21 days. Includes payment options and information about installment agreements.
Your rights: This is your first opportunity to pay in full, set up a payment plan, or dispute the assessment.
Action to take:
- Pay in full if possible
- Request an installment agreement
- If you disagree with the amount, file Form 12203 (Request for Appeals Review) or contact the IRS immediately to dispute
Collection actions: None yet. This is a courtesy notice requesting payment.
Notice 2: CP501 Notice (First reminder)
When sent: About 5 weeks after CP14 if you haven't paid or responded.
What it says: Reminder that you owe $X. Payment is now past due. Interest and penalties continue accruing.
Your rights: Same as CP14. You can still pay in full or set up an installment agreement.
Action to take: Don't ignore this. Respond with payment or payment plan request.
Collection actions: Still none, but escalation is beginning.
Notice 3: CP503 Notice (Second reminder)
When sent: About 10 weeks after CP14 if you still haven't responded.
What it says: Second reminder amount owed has increased due to penalties and interest. Urges immediate payment. Warns that failure to pay may result in IRS tax liens or IRS tax levies.
Your rights: You can still set up an installment agreement and prevent collection actions.
Action to take: This is your last chance to act before serious collection actions begin. Request an installment agreement immediately.
Collection actions: The IRS is preparing to file a federal tax lien or issue a levy if you don't respond.
Notice 4: CP504 Notice (Intent to levy state tax refund)
When sent: If you have a state tax refund coming and still haven't paid federal taxes.
What it says: The IRS intends to levy (seize) your state tax refund to apply toward your federal tax debt.
Your rights: Contact the IRS immediately to prevent the levy. Set up an installment agreement or pay in full.
Collection actions: State tax refund will be seized if you don't respond.
Notice 5: Letter 1058 or LT11 (Final Notice of Intent to Levy)
When sent: After CP503 if you still haven't paid or set up a payment plan.
What it says: This is your final notice before the IRS levies your assets. You have 30 days to respond. Explains your right to a Collection Due Process (CDP) hearing.
Your rights:
- Request a Collection Due Process hearing within 30 days by filing Form 12153
- Request an installment agreement
- Pay in full
- Request Currently Not Collectible status
- Submit an Offer in Compromise
ACTION CRITICAL: This is your last chance to prevent IRS tax levies. You must respond within 30 days.
Collection actions: After 30 days from this notice, the IRS can levy your bank accounts, wages, accounts receivable, and other assets without further warning.
Notice 6: Notice of Federal Tax Lien Filing
When sent: Any time after initial assessment if the balance exceeds approximately $10,000 and remains unpaid.
What it says: The IRS has filed a Notice of Federal Tax Lien with county recorders and state offices, creating a public record of your tax debt.
Your rights:
- Request a Collection Due Process hearing within 30 days
- Request lien withdrawal after entering an installment agreement
- Request lien discharge for specific property
- Request lien subordination to allow refinancing
Collection actions: The lien is already filed and public. Credit damage has occurred. You can still prevent levies by responding.
Your 30-day Collection Due Process rights
When you receive a Final Notice of Intent to Levy (Letter 1058) or Notice of Federal Tax Lien Filing, you have 30 days to request a Collection Due Process (CDP) hearing.
CDP hearing benefits:
- Collection actions are suspended while your hearing is pending
- You can propose collection alternatives (installment agreements, offers in compromise, Currently Not Collectible status)
- An independent Appeals Officer reviews your case
- You can raise disputes about the tax liability if you haven't had a previous opportunity to dispute
How to request: File Form 12153 (Request for a Collection Due Process or Equivalent Hearing) within 30 days of the Final Notice date.
Critical timing: The 30-day deadline is strict. If you miss it, you lose CDP hearing rights and the IRS can proceed with collection actions. You can still request an "equivalent hearing" after 30 days, but it doesn't stop collection actions.
How federal tax liens work
IRS tax liens are filed when you owe $10,000 or more in unpaid taxes and haven't responded to balance due notices.
When the IRS files a lien
The IRS files a Notice of Federal Tax Lien (NFTL) in public records when:
- You owe at least approximately $10,000 in taxes, penalties, and interest (the threshold was increased from $5,000 under the Fresh Start Initiative)
- You haven't paid or set up an installment agreement
- The IRS has sent you multiple notices
The notice of federal tax lien filing is automatic—there's no additional warning beyond the general collection notices. Many businesses first learn about liens when a bank, vendor, or customer discovers it during a credit check.
Where liens are filed
The IRS files notice of federal tax lien documents with:
- County recorder's offices where you own real estate
- Secretary of State offices in states where you do business
- Local filing offices depending on the jurisdiction
These offices maintain public records that anyone can search, including credit bureaus, lenders, and potential business partners.
Lien priority and what it means
Federal tax lien priority generally dates from the date of assessment (not the date of filing). This means:
Priority over later creditors: If the IRS tax lien was filed before other creditors filed their liens, the IRS gets paid first from proceeds of asset sales.
Purchase Money Security Interests (PMSI) have priority: If you buy equipment with a loan and the lender files a security interest within 45 days, that lender has priority over the IRS tax lien for that specific equipment.
Secured creditors may have priority: Creditors who perfected security interests before the IRS assessment date generally have priority over the IRS.
Practical impact: When you try to sell property with an IRS tax lien, the IRS must be paid from the proceeds (or agree to release the lien) before the sale can close. This makes selling property difficult.
How liens affect your business
Damaged credit: IRS tax liens severely damage business and personal credit scores, appearing on credit reports and remaining visible to potential lenders and partners.
Financing difficulties: Banks generally won't extend credit, loans, or lines of credit to businesses with federal tax lien filings. Existing credit lines may be frozen or terminated.
Vendor relationships: Vendors conducting credit checks may require cash on delivery instead of net-30 or net-60 terms.
Customer concerns: Potential clients who discover the notice of federal tax lien may question your business stability and award contracts to competitors.
Real estate complications: You cannot sell or refinance real estate without satisfying the lien or obtaining IRS consent.
Business sale obstacles: Selling your business becomes extremely difficult with an IRS tax lien because buyers won't acquire businesses with tax liabilities.
How to get a federal tax lien released or withdrawn
Once a federal tax lien is filed, several strategies exist to get it removed.
Lien release: Paying in full
The most straightforward way to remove a federal tax lien is paying the tax debt in full. Once paid, the IRS must release the lien within 30 days by filing a Certificate of Release of Federal Tax Lien in the same public offices where the original notice of federal tax lien was filed.
Important: Even after the lien is released, the public record of the notice of federal tax lien filing remains visible for 7-10 years, though it shows as "released." Credit bureaus should remove released liens from credit reports, but you may need to request removal.
Lien withdrawal: Removing the public notice
A lien withdrawal goes beyond a release—it removes the public Notice of Federal Tax Lien as if it was never filed. This is much better for your credit and business reputation.
Fresh Start Initiative provisions: The IRS's Fresh Start Initiative expanded lien withdrawal availability:
Direct Debit Installment Agreement (DDIA) withdrawal: If you owe $25,000 or less and enter a direct debit installment agreement (automatic bank withdrawals), you can request lien withdrawal after making three consecutive monthly payments and maintaining compliance with filing and payment obligations.
Post-payment withdrawal: After paying your tax debt in full, you can request lien withdrawal (instead of just release) in certain circumstances, particularly if the lien filing was premature or inappropriate.
Withdrawal eligibility requirements:
- Enter a direct debit installment agreement
- Make three consecutive direct debit payments
- Remain current with all filing and payment requirements
- Request withdrawal using Form 12277 (Application for Withdrawal of Filed Form 668(Y), Notice of Federal Tax Lien)
Processing time: Lien withdrawal requests typically take 30-60 days to process. Once approved, the IRS withdraws the NFTL from public records.
Lien discharge: Removing lien from specific property
A lien discharge removes the IRS tax lien from specific property while the lien remains in effect on other assets. This allows you to sell or refinance specific property.
When available:
- The IRS receives enough from the sale to satisfy the lien
- The property value is less than the prior creditors' liens (no equity for IRS)
- The IRS's interest is adequately protected through other collateral
How to request: File Form 14135 (Application for Certificate of Discharge of Property from Federal Tax Lien) with documentation showing sale price, existing liens, and closing statement.
Example: You're selling a building for $500,000. The mortgage balance is $450,000. The IRS tax lien is $100,000. After paying the mortgage, only $50,000 remains. You can request a lien discharge agreeing to pay the $50,000 to the IRS from sale proceeds. The IRS discharges its lien on the building, allowing the sale to close.
Lien subordination: Allowing other creditors priority
Lien subordination doesn't remove the lien but allows another creditor to have priority over the IRS. This is useful for refinancing.
When available: When subordination will increase the amount ultimately collected by the IRS, such as allowing you to refinance and pay the IRS faster.
Example: You need to refinance your building to get working capital for your business. The IRS tax lien blocks the refinance. You request subordination, showing the new lender will have first position. The refinance provides you cash to pay the IRS more quickly. The IRS grants subordination, allowing the refinance to proceed.
How to request: File Form 14134 (Application for Certificate of Subordination of Federal Tax Lien).
Lien withdrawal for businesses under $25,000
If your business tax debt is $25,000 or less and you enter a direct debit installment agreement, the IRS will withdraw the lien after three payments. This is one of the most valuable Fresh Start provisions for small businesses.
Steps:
- Set up direct debit installment agreement online or by phone
- Make three consecutive monthly payments on time
- Remain current with all filing and payment requirements
- File Form 12277 requesting lien withdrawal
- IRS processes withdrawal, removing the NFTL from public records
Timeline: Approximately 90 days from entering the installment agreement to lien withdrawal (30 days for three payments + 60 days for IRS to process withdrawal request).
How IRS levies work
IRS tax levies are the IRS's power to seize your property to satisfy tax debt.
Types of property the IRS can levy
- Bank accounts: The IRS sends a levy notice to your bank. The bank freezes your account for 21 days, then sends the frozen funds to the IRS.
- Wages and salary: The IRS sends a levy to your employer requiring them to withhold a substantial portion of your wages and send it to the IRS. Wage levies continue until released or the debt is paid.
- Accounts receivable: The IRS sends levy notices to your customers requiring them to pay the IRS instead of paying you.
- Social Security benefits: The IRS can levy up to 15% of Social Security benefits.
- Retirement accounts: The IRS can levy 401(k)s, IRAs, and other retirement accounts, though this typically happens only after other levy attempts fail.
- Real estate and vehicles: The IRS can seize and sell real property and vehicles, though this is less common because it's time-consuming and expensive for the IRS.
- Business assets: The IRS can seize inventory, equipment, and other business assets.
The levy process
Step 1: Final Notice of Intent to Levy - The IRS sends Letter 1058 or LT11 giving you 30 days to respond.
Step 2: 30-day waiting period - You have 30 days to pay, set up a payment plan, or request a Collection Due Process hearing. During this time, no IRS tax levy occurs.
Step 3: Levy issuance - After 30 days, the IRS can issue a levy at any time without further notice. The levy notice goes directly to your bank, employer, or customer—not to you.
Step 4: Freeze/seizure -
- Bank levy: Funds freeze for 21 days, then transfer to the IRS
- Wage levy: Employer begins withholding from next paycheck
- Accounts receivable levy: Customer must pay IRS instead of you
Step 5: Notification to you - You receive notification that an IRS tax levy was issued, but by this time funds are already frozen or seized.
Bank account levies
Bank IRS tax levies are the most common type because they're easy for the IRS to execute and immediately satisfy part of the debt.
How it works:
- IRS sends levy notice to your bank
- Bank freezes all accounts in your name (checking, savings, money market)
- Funds are held for 21 days (giving you time to resolve the issue)
- After 21 days, frozen funds are sent to the IRS
Amount seized: All funds in accounts up to the amount you owe. If you owe $40,000 and have $60,000 in accounts, the IRS levies $40,000. If you have $20,000, the IRS takes all $20,000 and can levy again later for the remaining balance.
Multiple accounts: The levy applies to all accounts at banks the IRS knows about. The IRS uses databases showing where you have accounts.
Ongoing deposits: Only funds in the account on the date of levy are frozen. Deposits made during the 21-day holding period are not frozen (though the IRS could issue another levy).
Wage levies (garnishment)
Wage IRS tax levies are continuous—they continue taking your wages until the IRS releases the levy or the debt is paid in full.
How much is taken: The IRS uses tables based on your filing status and dependents. For most people, the IRS leaves only a minimal amount for basic living expenses and takes the rest.
Example: Single person with no dependents earning $5,000 monthly. The IRS allows approximately $1,200 for basic living expenses and levies $3,800 per month (76% of wages).
Impact on employment: Your employer knows about the levy. While employers cannot fire you solely for one tax levy, having a wage levy can damage your employment relationship and advancement opportunities.
Duration: Wage levies continue indefinitely until released. Even after you set up an installment agreement, you must specifically request levy release—it doesn't happen automatically.
Accounts receivable levies
The IRS can levy amounts your customers owe you by sending IRS tax levy notices to your customers requiring them to pay the IRS instead of paying you.
Devastating impact: Customers learning you owe the IRS significant back taxes may lose confidence in your business and terminate relationships even after the levy is resolved.
Continuous vs one-time: Unlike bank levies (one-time), accounts receivable levies can be continuous, applying to future payments from customers.
How to release or prevent levies
Once an IRS tax levy is issued, specific steps can get it released. Better yet, you can prevent levies before they're issued.
Prevent levies: Respond within 30 days of Final Notice
The best levy strategy is prevention. When you receive Final Notice of Intent to Levy (Letter 1058), you have 30 days to prevent IRS tax levy by:
Option 1: Pay in full - If possible, pay the balance to eliminate the debt and levy risk.
Option 2: Installment agreement - Set up an installment agreement. Once approved, the IRS will not levy while you're making required payments.
Option 3: Collection Due Process hearing - File Form 12153 within 30 days requesting a CDP hearing. This prevents levy while the hearing is pending.
Option 4: Currently Not Collectible status - If you can prove financial hardship (cannot afford basic living expenses), request Currently Not Collectible (CNC) status. While in CNC status, collection enforcement is suspended.
Option 5: Offer in Compromise - Submit an Offer in Compromise if you can prove inability to pay the full amount. While the offer is pending, collection is generally suspended.
Release a bank levy: Act within 21 days
If the IRS has levied your bank account, funds are held for 21 days before transfer to the IRS. You have 21 days to get the levy released.
Actions to take:
- Immediately contact the IRS phone number on the levy notice
- Request levy release by setting up an installment agreement
- Provide financial hardship documentation if the levy will cause severe hardship (cannot pay rent, buy food, or maintain utilities)
- Fax documentation to the IRS number on the notice
Economic hardship standard: The IRS must release a levy causing economic hardship (inability to meet basic living expenses). Provide documentation proving hardship:
- Bank statements showing insufficient funds for rent/mortgage
- Utility shut-off notices
- Medical bills and prescriptions
- Evidence you cannot afford food/basic necessities
Processing time: The IRS can take several days to process levy release. Act immediately within the 21-day period.
Release a wage levy: Set up payment plan
Wage IRS tax levies don't automatically release when you enter an installment agreement—you must specifically request release.
Steps:
- Set up an installment agreement
- Call the IRS or submit written request for levy release
- Provide installment agreement confirmation
- Request Form 668-D (Release of Levy) be sent to your employer
Processing: The IRS issues Form 668-D to your employer, who stops withholding for the IRS tax levy. This typically takes 1-2 weeks.
Installment agreement payments continue: You still must make monthly installment agreement payments. The levy release doesn't eliminate the debt.
Appeal a levy: Collection Appeals Program (CAP)
If the IRS levies your assets and you disagree, you can request an appeals review through the Collection Appeals Program.
When to use CAP:
- The levy was issued in error
- You had an installment agreement that should have prevented the levy
- The levy creates severe economic hardship
- You weren't given proper notice
How to request: Call the number on the levy notice and request a CAP appeal, or submit a written request. Collection actions are generally suspended while the appeal is pending.
How NSKT Global can help with liens and levies
NSKT Global specializes in IRS collection defense, helping businesses prevent IRS tax liens and IRS tax levies or obtain release of collection actions already in place.
We offer comprehensive lien defense services including lien prevention strategies responding to collection notices before notice of federal tax lien filings occur with installment agreements or collection alternatives, lien withdrawal assistance preparing Form 12277 applications for businesses qualifying under Fresh Start provisions, lien discharge applications enabling sale or refinancing of specific property through Form 14135, and lien subordination requests allowing refinancing to proceed through Form 14134.
Whether you've received Final Notice of Intent to Levy with 30 days to prevent seizure of assets, have an IRS tax lien filed that's damaging your credit and preventing business financing. Our expertise ensures you preserve Collection Due Process rights through timely filing of Form 12153 within critical 30-day deadlines, obtain lien withdrawal after establishing installment agreements eliminating credit damage, secure immediate levy releases within 21-day hold periods preventing permanent loss of funds, and implement collection alternatives like installment agreements or CNC status preventing future IRS tax liens and IRS tax levies while maintaining business operations.
