The most common IRS enforcement actions are liens, levies, and wage garnishments. Passport restrictions can be initiated by the IRS if a taxpayer owes more than $62,000 (for 2024- adjusted annually for inflation) and is not in an agreement with the IRS (payment plan or a hardship agreement such as currently not collectible status or an offer in compromise). The most egregious IRS collection action, the asset seizure, is used sparingly by the IRS. In 2023, the IRS conducted only 65 seizures on taxpayers to pay their back tax bill.
Notice of Federal Tax Lien
A Notice of Federal Tax Lien is the government’s public claim against a taxpayer’s property when they do not pay their tax bill. The tax lien alerts creditors that the government has a legal claim to a taxpayer’s property for unpaid taxes. An IRS tax lien can be filed by the IRS once the tax is assessed, and the IRS makes a notice and demand for payment. However, in practice, the IRS goes through many notices before filing a Notice of Federal Tax Lien. Also, generally, the IRS will only file a tax lien if a taxpayer owes more than $10,000 and is not in an agreement which requires a lien to be filed. Taxpayers who have an extension to pay (up to 180 days) or enter into a streamlined installment agreement (owe up to $50,000 and can pay within 72 months) can generally avoid a tax lien if they obtain the agreement before the lien is filed.
The IRS sends a Letter 3172 with the tax lien to notify the taxpayer of the filing of the lien with the taxpayer’s local courthouse. Taxpayers can challenge the filing of a tax lien if they believe the tax is not owed or a better solution is available that does not require a lien to be filed. Liens can be removed if the taxpayer pays in full (lien is “released”) or if they request a withdrawal of the lien. The IRS allows taxpayers to request withdrawal if they pay their balance under $25,000 and enter into a 60-month direct debit payment agreement.
Avoiding a Lien
It may not be possible to avoid a Notice of Federal Tax Lien. Generally, all taxpayers who owe more than $50,000 will eventually receive a tax lien, even if they are in payment agreement. They can avoid a lien if they move quickly and get into a streamlined installment agreement (owes less than $50,000 and can pay within 72 months or the collection statute expiration date, whichever is shorter) before a lien is filed.
