The Difference Between a Tax Lien and a Levy
An IRS or Oregon Department of Revenue (ODR) tax lien is a formal public notice—to anyone who knows where to look—that you owe taxes. A lien attaches to your property and affects your rights to the property. When a tax lien is filed or recorded it will hurt your credit.
A lien does NOT involve the direct taking of money or property from you. An IRS levy or ODR garnishment/seizure does involve their taking of your property. This includes your real estate, personal property, or money owed to you. The most common ones are levies or garnishments on money owed to you by others. Meaning your paycheck being paid to you by your employer or money held in your bank or credit union accounts.
Aside from those, the IRS and ODR can levy on or seize just about anything you own.
Can the IRS and ODR Take Your Car?
Yes, they can under certain conditions. Focusing for the sake of convenience on the IRS’s conditions:
According to the Internal Revenue Manual, the IRS may not make an “uneconomic levy.” This means that if it costs the IRS more to go through the levy process than what they’d get out of your vehicle, it can’t levy on it. If you owe a lender on the vehicle, your equity in the vehicle has to be enough (subtracting sales related costs) to have money left over to pay your back taxes. Most people that have auto loans do not have any equity in their vehicle.
What if you owe a lender on the vehicle?
your equity in the vehicle has to be enough (when subtracting sales related costs) to have money left over to pay towards your back taxes. People that have auto loans do not tend to have equity in their vehicle (i.e., they owe more money to the creditor than the bluebook value of their car). Thus, in most scenarios where there is a loan on a car, there is absolutely no chance that the IRS or ODR will seize the vehicle.
Thus, if you need the vehicle to stay employed, to go to important doctor appointments, or to get your kids to school, the IRS would not seize it. The IRS cannot levy on a vehicle if that would create further economic hardship for the taxpayer.
The IRS is not likely to seize a vehicle that will not put much into the IRS’s pocket. This is determined after accounting for the effort and costs involved and the statistics confirm that it is highly unlikely that the IRS will seize any vehicles. According to the IRS annual table of Delinquent Collection Activities, in all of
According to the IRS annual table of Delinquent Collection Activities, in all of 2013, it made only 547 seizures of property, which includes the entire country. Contrast that with 602,005 federal tax liens filed during that year. And 1,855,095 levies requested on third parties—primarily garnishments of paychecks and bank accounts. The IRS is going after the easy money instead of using the much more complicated process of grabbing and selling tangible assets.
Are You at Risk of a Vehicle Levy?
Your vehicle is at risk if you haven’t cooperated with the IRS or ODR.
- If you haven’t been reading the notices they’ve sent you
- If you haven’t been complying with their requests to contact them
The best strategy in dealing with the IRS and ODR regarding past due taxes is to contact them after you receive the first notice. This is the time when you want to work out an affordable payment plan. The IRS is actually easy to deal with in terms of setting up an affordable payment plan.
What is a “Currently Uncollectible” Status?
if you can’t afford to make payments to the IRS based on your income, expenses, and IRS allowable expenses, you will not need to make payments to the IRS. During this time the IRS will not take any collection against you.
A Chapter 7 or Chapter 13 bankruptcy filing will immediately stop the IRS and the ODR from levying on your vehicle. They will not be able to take any other action to collect (including paycheck garnishments, bank levies, and from recording liens).
Henry and Susan owe a combined $15,000 to the IRS and the ODR for personal income taxes, interest, and penalties for 2009. In 2009, Harry started a business after being been laid off. The business made money, but not enough to sustain their family. During that year he paid no quarterly estimated taxes and Susan cut back on her employer’s tax withholding to make ends meet.
Henry did find a job in 2010, but it paid significantly less than his prior job. They filed their 2009 tax returns on time, but they owe other creditors with debts accrued during the business venture. Therefore, they have been trying to lay low from the IRS and ODR. This is until Harry and Susan began to receive aggressive sounding notices from both taxing agencies threatening to levy on and seize their vehicles.
They go to see a bankruptcy attorney and are surprised that bankruptcy discharges an income tax debt if it meets certain (mostly time-based) conditions. Their 2009 taxes meet those conditions.
On their behalf, the attorney files a Chapter 7 case. That immediately prevents the IRS and the ODR from taking further collection action against them. Within less than 4 months, that $15,000 in income taxes is discharged, along with most of their other debts. This means that the tax is legally no longer owed, and cannot ever be collected by the IRS and the ODR.
The above example is not meant to give specific legal advice. The information in this blog and example is meant to give general information. Indeed the laws are always changing and everybody’s situation is unique. When it comes to legal issues, it is recommended that an individual meets with an experienced Portland bankruptcy lawyer. Attorney, Adam M. Weiner, is a Portland bankruptcy attorney interested in empowering people.
Gaining control over your financial life is priceless (through knowledge, information, debt settlement, and, if appropriate, a chapter 7 or chapter 13 filing). The result is reduced stress so individuals can more easily achieve the life that they desire.