What is the difference between a tax lien and a levy?

• A. A lien is the actual seizure of assets; a levy is a security interest in property.
• B. A lien is a security interest in property to secure the tax debt; a levy is the actual seizure of assets to satisfy the debt.
• C. A lien is a penalty assessed by the IRS; a levy is a payment plan.
• D. A lien cancels tax debt; a levy extends the statute of limitations.

Answer: (B)

The difference rests on what each action does in relation to your tax debt. A tax lien is a security interest in your property—the government records a claim that your assets secure the tax debt. It doesn’t take your property right away, but it can complicate selling or refinancing and ensures the debt is attached to your assets.

A levy, on the other hand, is the actual taking of property to satisfy the debt. It means the IRS can seize funds from bank accounts, garnish wages, or seize other assets to pay what you owe.

So the statement that matches this distinction—lien as a security interest in property to secure the debt, and levy as the actual seizure of assets to satisfy the debt—is correct. The other descriptions misstate what a lien or levy does, such as calling a lien the actual seizure, a levy a payment plan, or suggesting penalties or changes to the statute of limitations.