A lien is a claim. A levy is a taking. Think of a mortgage on a house versus a foreclosure sale. The mortgage sits on the title for years without anyone moving out. The foreclosure is when the house actually changes hands.
In IRS collection, the federal tax lien is the claim and the levy is the taking. When the IRS freezes your bank account, it is using the levy. Both are often in play at once, and confusing them leads to bad decisions.
The federal tax lien: automatic and everywhere
IRC § 6321 says that if a person liable for tax neglects or refuses to pay after demand, the amount owed, with interest, penalties, and costs, "shall be a lien in favor of the United States upon all property and rights to property, whether real or personal, belonging to such person."
Three features matter for bank accounts:
- It is automatic. No court order. No filing. It arises after notice and demand and nonpayment.
- It is retroactive to assessment. Under § 6322, the lien arises at the time the assessment is made and continues until the liability is satisfied or becomes unenforceable by lapse of time.
- It covers everything you own, including money in the bank. The Supreme Court's decision in United States v. Craft, 535 U.S. 274 (2002), shows how broadly "property and rights to property" is read, extending the lien to a spouse's interest in entireties property. See entireties accounts and the IRS.
The Notice of Federal Tax Lien you may have heard about is the public filing under § 6323 that puts other creditors on notice. When the IRS files one, § 6320 requires it to notify you within 5 business days after filing and gives you a 30-day window, starting the day after that 5-day period, to request a CDP hearing about the lien.
The levy: the actual taking
IRC § 6331(a) lets the IRS collect by levy on all property and rights to property belonging to the taxpayer "or on which there is a lien provided in this chapter." Section 6331(b) says levy includes "the power of distraint and seizure by any means." The IRM is blunt: "There is no legal distinction between levy and seizure" (IRM 5.11.1.2). A notice of levy is how the IRS seizes property a third party holds, like a bank balance.
For a bank account, the levy is Form 668-A. The bank freezes funds on deposit when it is served, up to the levy amount, and pays the IRS after 21 days unless the levy is released. See Form 668-A explained.
The IRM notes a subtle point about how the two connect: "Normally, a levy attaches to the same property that the taxpayer's IRC 6321 statutory lien attaches" (IRM 5.11.4.4).
Side by side
| Federal tax lien | Bank levy | |
|---|---|---|
| What it is | A legal claim on all property | A seizure of specific property |
| Authority | § 6321, § 6322 | § 6331, § 6332 |
| When it starts | Automatically after demand and nonpayment, effective from assessment | After § 6331(d) and § 6330 notices and 30-day periods |
| Public filing | Notice of Federal Tax Lien under § 6323 | No public filing; served on the bank |
| Your hearing right | CDP under § 6320 after an NFTL filing | CDP under § 6330 before the first levy |
| Effect on the account | No freeze by itself | Freeze, then payment after 21 days |
| Ends when | Released under § 6325(a), or the liability is satisfied or unenforceable | Released under § 6343, or the bank pays |
Releasing one does not release the other
This is where people get burned.
A levy release under § 6343(a) tells the bank to stop. It does nothing to the lien. The IRS can levy again later, and § 6343(a)(3) says so expressly.
A lien release under § 6325(a) is required within 30 days after the IRS finds the liability is fully satisfied or legally unenforceable, or after it accepts a bond conditioned on payment. Paying the amount on one bank levy rarely does that, because a levy may be for less than the full debt.
A lien withdrawal under § 6323(j) removes the public notice in certain circumstances, as if it had never been filed. That is a different tool with different criteria, and it does not stop a levy.
How a lien helps the IRS collect a bank levy
The lien matters to bank levies in three practical ways:
- Priority against other creditors. A filed NFTL sets the IRS's priority against many competing claims under § 6323. When a bank has its own deposit-secured loan, § 6323(b)(10) protects the bank only to the extent of a loan made without actual notice or knowledge of the lien. See what your bank does with a levy.
- A release can be a deal point. The IRM gives an example of releasing a bank levy so the levied funds can buy a bond, which in turn lets the taxpayer get the lien released (IRM 5.11.2.3.1.3).
- Installment agreements and liens. Section 6343(a)(1) says the IRS is not required to release a levy for an installment agreement if release would jeopardize its secured creditor status. Treas. Reg. § 301.6343-1(b)(3) gives the example of an intervening judgment lien creditor when no tax lien notice has been filed.
Hearing rights are separate too
Because the lien filing and the levy are different actions, the hearing rights are separate. A CDP notice for a lien filing under § 6320 and a CDP notice for a proposed levy under § 6330 each come with their own 30-day window. Missing one does not waive the other. If you receive both, track both deadlines, and consider whether one hearing request can raise everything you need for those tax periods.
Which one should you worry about first?
If your account is frozen, the levy, every time. It has a 21-day clock. The lien does not.
Once the levy is handled, the lien becomes the long-term issue, especially if you need to sell or refinance property or apply for credit. A payment plan, an offer, or full payment each affects the lien differently. Plan for both.
The lien is the IRS saying "that is ours." The levy is the IRS coming to get it. Stop the levy first; then deal with the lien.
Next steps: how to get the bank levy released and the assessment-to-levy timeline. For the lien side in more depth, see the firm's page on IRS tax liens.