IRS Lien vs Levy: What Each Means and How to Remove Each

A lien and a levy are not the same thing, and confusing them leads to wrong decisions. A federal tax lien is the IRS’s legal claim against your property. It does not take anything. A levy is the IRS actually seizing your property: your bank account, your paycheck, your car. The lien is a warning sign. The levy is the action. Both can be removed, but the removal process, the timing, and the consequences are different for each. Understanding which one you are dealing with is the first step.

What is a federal tax lien?

A federal tax lien arises by operation of law under IRC 6321 when three things happen: (1) the IRS assesses a tax, (2) the IRS sends a notice and demand for payment, and (3) you do not pay within 10 days. At that point, the lien attaches to all your property and rights to property, including property acquired after the lien arises.

The lien exists even before the IRS files a public notice. Filing a Notice of Federal Tax Lien (NFTL) with the county recorder (or equivalent) makes the lien public. The public filing is what affects your credit, shows up in title searches, and puts third parties (buyers, lenders) on notice that the IRS has a claim.

What the lien does:

• Attaches to all property you currently own and all property you acquire while the lien is in effect
• Appears on your credit report (after the NFTL is filed publicly)
• Prevents you from selling property free and clear (the buyer would take subject to the lien)
• Can affect your ability to get a mortgage, car loan, or business financing
• Can interfere with professional licensing in some states

What the lien does not do:

• Does not seize anything. You still have possession and use of your property.
• Does not garnish your wages.
• Does not freeze your bank account.
• Does not require you to sell anything.

What is a levy?

A levy under IRC 6331 is the IRS seizing your property to satisfy the tax debt. Unlike the lien (which is a passive claim), a levy is an active seizure. Common types:

Bank levy. The IRS sends a notice to your bank, which freezes the funds in your account. The bank holds the money for 21 days, then sends it to the IRS. See IRS bank levy: what to do in the first 21 days.

Wage levy (garnishment). The IRS sends Form 668-W to your employer, who withholds a portion of each paycheck and sends it to the IRS. This is continuous (attaches to every paycheck) until the debt is paid or the levy is released. See IRS wage garnishment.

Property seizure. The IRS can seize and sell personal property (vehicles, boats) and real property (your house). Real property seizures are rare and require IRS management approval. Personal property seizures are more common, particularly for high-value vehicles.

Accounts receivable levy. For self-employed taxpayers, the IRS can levy amounts owed to you by your clients.

Retirement account levy. The IRS can levy IRAs, 401(k)s, and other retirement accounts, though it must follow specific procedures and the levy may be exempt from the 10% early withdrawal penalty.

How does the IRS decide between a lien and a levy?

The IRS typically follows a sequence:

1. Assessment and notice. The IRS assesses the tax and sends a notice and demand (CP14 or equivalent). The lien arises automatically if you do not pay within 10 days.

2. Collection contact. The IRS sends additional notices (CP501, CP503, CP504) requesting payment. The CP504 specifically warns of potential levy action.

3. Notice of Federal Tax Lien. The IRS files the NFTL to protect its interest and put creditors on notice. Filing the NFTL triggers your right to a CDP hearing on the lien.

4. Final Notice of Intent to Levy. The IRS sends Letter 1058 or LT11, giving you 30 days’ notice before levying. This triggers your right to a CDP hearing on the levy.

5. Levy. If you do not respond, pay, or enter into a collection alternative, the IRS proceeds with the levy.

The IRS can file a lien without levying, and it can levy without filing a lien (though it typically files the lien first). The lien protects the IRS’s priority position among creditors. The levy actually collects the money.

How do I get a lien removed?

Four options, each with different requirements:

Lien release. Under IRC 6325(a), the IRS must release the lien within 30 days after the tax is fully paid, the collection statute expires, or a bond is accepted. The release removes the public filing and clears the encumbrance on your property.

Lien withdrawal. Under IRC 6323(j), the IRS can withdraw the NFTL (remove the public filing) even while the underlying lien still exists. The IRS will consider withdrawal when: (1) the filing was premature or not in accordance with IRS procedures, (2) you have entered into a direct debit installment agreement, (3) withdrawal would facilitate collection of the tax, or (4) withdrawal is in the best interest of both the taxpayer and the government. A withdrawal removes the credit report impact.

Lien discharge. Under IRC 6325(b), the IRS can discharge specific property from the lien. This allows you to sell or refinance the property without the lien attaching to the proceeds (though the IRS typically requires that the net proceeds go toward the tax debt). Useful for real estate transactions where the lien is blocking a sale.

Lien subordination. Under IRC 6325(d), the IRS can subordinate its lien to another creditor’s interest. This allows a new mortgage or loan to take priority over the IRS lien. The IRS will subordinate if the subordination will ultimately increase the IRS’s ability to collect (for example, by allowing a refinance that generates cash to pay the tax debt).

How do I get a levy released?

Five paths:

Enter into an installment agreement. The most common path. Once you have an approved installment agreement, the IRS releases the levy. For a bank levy, you must act within the 21-day holding period.

Demonstrate economic hardship. Under IRC 6343(a)(1)(D), the IRS must release a levy if it creates an economic hardship (the levy prevents you from meeting basic living expenses). Provide documentation of your income and expenses showing that the levy leaves you unable to pay for necessities.

File a CDP hearing request. Within 30 days of the Final Notice of Intent to Levy, file Form 12153 to request a CDP hearing. The IRS must stop the levy while the hearing is pending.

Submit an Offer in Compromise. While an OIC is pending, the IRS generally suspends levy action. However, the OIC must be filed after the levy is served, and the IRS has discretion.

File missing returns. If the levy was triggered because you have unfiled returns, filing the delinquent returns may cause the IRS to release the levy while it processes the returns and determines whether you owe additional tax or are due a refund.

How does this affect cross-border filers?

Liens on US property owned by Canadian residents. The IRS can file a lien on any US property you own, even if you live in Canada. If you own US real estate, a US investment account, or a US retirement account, the lien attaches. Selling the property requires either paying the tax debt in full or obtaining a lien discharge from the IRS.

Lien enforcement on Canadian property. The IRS cannot directly file a lien on Canadian property. To reach Canadian assets, the IRS would need to use the treaty collection assistance provisions (Article XXVIA), which require the debt to be “finally determined” (post-objection, post-appeal). Even then, the CRA would enforce the debt through Canadian mechanisms, not through a US lien filing.

Levies on US bank accounts held by Canadian residents. The IRS can levy US bank and brokerage accounts regardless of where you live. If you maintain US accounts while living in Canada, those accounts are reachable by IRS levy. The 21-day holding period and the CDP hearing right apply the same as for domestic taxpayers.

Credit impact across borders. A US federal tax lien affects US credit reports. Canadian lenders who pull US credit (common for cross-border borrowers) will see the lien. The lien does not appear on Canadian credit reports (Equifax Canada, TransUnion Canada) because those systems do not import US IRS data. However, a Canadian lender conducting due diligence on a cross-border borrower may discover the lien through a US credit pull.

What should I do next?

Determine whether you are dealing with a lien, a levy, or both. If you received a Notice of Federal Tax Lien: the lien is already in place, and the immediate question is whether to seek withdrawal (to protect your credit) or discharge (to enable a sale or refinance). If you received a Final Notice of Intent to Levy: you have 30 days to request a CDP hearing or enter into a collection alternative. If your bank account or wages have already been levied: act immediately (within the 21-day bank hold period for bank levies, or request hardship release for wage levies). For both liens and levies, the long-term resolution is the same: resolve the underlying tax debt through an installment agreement, OIC, or CNC status.

This guide is general information, not tax advice for your specific situation. Which points apply, and how, depends on your facts.