Which statement regarding the federal government's rights in collecting a tax lien when the owner owes federal income taxes is correct?

• A. II only
• B. I only
• C. Both I and II
• D. Neither I nor II

Answer: (A)

When someone owes federal income taxes, the IRS has two main tools to secure and collect what’s owed: a tax lien and a levy. A tax lien is a legal claim against all property and rights to property the taxpayer owns. It becomes effective after the IRS issues a Notice of Federal Tax Lien and typically attaches to real estate, personal property, and financial assets, making it harder for the taxpayer to sell or refinance without addressing the debt. The lien stays until the tax is paid, the lien is withdrawn, or it expires under applicable rules.

A levy, by contrast, is the actual taking of property to satisfy the tax debt. The IRS must issue a levy to seize assets such as bank accounts, wages, or other assets. Levies are enforcement actions that directly transfer money or property to the government, whereas a lien is more about securing the claim and giving the government priority over other creditors.

The correct choice depends on the exact statements being evaluated. Since those two statements aren’t shown here, I can’t pinpoint why the second statement is the correct one. If you share the exact wording of the two statements, I’ll explain why the second statement accurately reflects the IRS’s rights in collecting a tax lien.