6.3 Types of Collection Actions

The most common IRS collection actions are liens, levies, and offsets. A lien is a notice of the tax liability in the public records; a lien attaches to real property and must be satisfied before the property can be transferred or mortgaged. A levy is the monthly garnishment of wages or benefits. An offset occurs when the IRS seizes a tax refund from a later year and applies it to earlier years of liability.

The IRS will file liens against real estate when a taxpayer owes $10,000 or more in taxes. The lien does not need to specifically describe the property; all property owned by the taxpayer in that jurisdiction is subject to the lien. The IRS generally does not foreclose on primary homes or repossess primary vehicles for taxpayers with ordinary amounts of liability. Instead, the lien serves to protect the rights of the IRS if the property is transferred. A lien will expire when the underlying debt expires, and this expiration date is listed on the lien. The IRS does not move to cancel or remove liens; the liens are self-cancelling.

The IRS may levy bank accounts, wages, retirement plans, and federal payments such as Social Security and tax refunds. Current IRS policy discourages levies on retirement plans even though they are not exempt from seizure.

The IRS will always move to seize and offset a taxpayer’s tax refund to pay prior taxes owed to the IRS. This can only be avoided if the offset will result in a significant hardship to the taxpayer. This relief must be requested by the local Taxpayer Advocate in the form of a Taxpayer Assistance Order.