For the second year in a row, there was a dramatic drop in IRS liens and levies. In Fiscal Year 2020, the IRS filed 291,081 liens, and the agency sent out 396,269 notices of levies requested from third parties. The following year, in FY 2021, liens dropped to 212,251 and levies dropped to 305,610.
This is the second year in a row that there has been a decrease in IRS liens and levies. In 2019, the agency issued 543,603 liens and 785,963 levies. This means that IRS liens and levies were cut almost in half from 2019 to 2020, and then, the numbers fell even further in 2021.
In contrast, if you compare liens and levies from 2018 to 2019, you see a marked increase in the number of liens and levies. From 2021 to 2022, there is also likely to be a significant increase in the number of liens and levies as the IRS resumes normal activity and turns to enforced collection actions to collect unpaid taxes.
Difference Between IRS Liens and Levies in 2020 and 2021
Between 2020 and 2021, the number of IRS liens and levies dropped by almost a quarter. IRS liens dropped by 27% from 2020 to 2021. IRS levies dropped by 23% in the same time period. But why? There are multiple reasons behind this drop.
Why Did IRS Liens and Levies Drop?
The number of IRS liens and levies did not drop because there was less unpaid tax debt. In fact, there were more delinquent taxpayer accounts in 2021 than in the previous year. In 2020, 4.6 million new accounts became delinquent, but in 2021, 8.1 million new accounts went delinquent.
Typically, an increase in delinquent accounts leads to an increase in collection activities. However, this was not the case from 2020 to 2021, primarily due to the COVID pandemic.
Delinquent Accounts and Unpaid Taxes From 2020 to 2021
When you take into account the delinquent accounts that existed at the beginning of the year as well as the delinquent accounts that closed during these years, there were more delinquent accounts at the close of 2021 than the previous year. At the end of 2020, there were 8.4 million delinquent accounts. By the end of 2021, this number had grown to 10.3 million delinquent accounts.
In terms of balances owed, delinquent taxpayers owed $114.3 million at the end of 2020. By the end of 2021, they owed even more — $133.4 million. In other words, the number of delinquent accounts increased by about 23%, and the amount of unpaid taxes increased by about 17%. Again, although there was an increase in delinquent accounts and taxes owed, the IRS dialed back on liens and levies.
COVID-Related Pause on IRS Collection Activities
To help taxpayers, the IRS paused much of its involuntary collection actions during the early months of the COVID pandemic. As part of the People First Initiative, the IRS announced that it would not issue any new tax liens or levies from April 2020 to July 2020.
After July 15, 2020, the IRS resumed the majority of its compliance operations. Based on this fact, one might assume that the number of liens and levies would have higher in 2021. However, although the pause officially ended in July 2020, the IRS kept its automated lien and levy program idle through the summer of 2021. In effect, the pause on collection actions continued through the middle of 2021.
The IRS Took a "Soft" Approach to Collections in 2020 and 2021
In July 2020, when collection actions were slated to resume, the IRS's Deputy Commission of Collection & Operations Support issued a memo telling all collection employees to "resume [collection actions] on a case-by-case basis" and "apply good judgment in determining when enforcement action is appropriate".
The memo also advised collection employees to use "Soft Contact procedures to determine the impact of the national emergency on the taxpayer." Then, the memo explained that the levy and lien automated programs would remain idle while IRS employees caught up with the backlog of incoming mail and outgoing notices.
The Role of Automated Notices in the Lien and Levy Process
To file a lien or request a levy against a taxpayer, the IRS must send out a certain number of notices. Typically, initial notices alert the taxpayer that they have a balance due and advise them of their right to appeal. If the taxpayer ignores these notices and doesn't make arrangements on their tax debt, the IRS starts to send out more serious notices including the final demand for payment and notice of intent to file a lien or levy.
With its automated system shut down for over a year, the IRS wasn't sending these notices and by extension was unable to issue as many liens or levies. The IRS resumed sending out automated balance due notices on June 15, 2021. These notices alerted taxpayers that they had 30 days to respond or pay their tax bills, and this opened the door to issuing notices of federal tax liens and levies beginning in mid-August of 2021.
IRS Collection Activities in 2020 and 2021
To summarize these dates, the IRS essentially only pursued enforced collection actions for the first three months of 2020 and the last four months of 2021. Although the agency spent a longer amount of time on enforced collection actions in 2021, IRS officials understood that Americans were still reeling from the COVID pandemic, and they moved forward carefully with collections.
In contrast, the beginning of 2020 was business as usual. Although the first COVID case in the United States was confirmed in January of 2020, the pandemic was largely ignored by Americans until Tom Hanks tested positive in March 2020. Backed by vast public concern, the government passed the Coronavirus Aid, Relief, and Economic Security Act (CARES ACT) at the end of that month, and the IRS stopped most collection actions the following month in April 2020.
Why There Were Fewer IRS Liens and Levies in 2021 Than 2020
If you have unpaid taxes, the IRS has the right to levy your wages, bank accounts, and other assets, but the most common levies are for federal and state income tax refunds. The IRS also paused the programs that seize state tax refunds from April 2020 through June 2021.
Because most tax refunds are issued early in the year, this indicates that more refunds were likely to be levied in 2020 than in 2021, even though the enforced collection window was actually wider in 2021. This may be one of the primary reasons that there were fewer liens and levies in 2021 than in 2020.
Get Help With IRS Tax Debt
The IRS was very lenient on delinquent taxpayers during the COVID pandemic, but now, the agency is back to business. In 2022, there is likely to be a significant increase in liens and levies. To protect yourself and your assets, don't ignore your unpaid taxes.
Instead, get help and negotiate arrangements with the IRS before the agency issues a federal tax lien or a levy against you. To get help with unpaid IRS and state taxes, contact a local tax pro. A local tax pro understands the tax laws in your area, and they can help you find the best resolution for your unique situation. Use TaxCure to search for a local tax pro today.