Should you owe the IRS substantial back taxes, they will likely begin to levy collection actions against you and your tax account. In rare cases, this goes so far as to result in the collection and seizure of paychecks and existing assets – yes, the IRS even has the authority to claim the home you live in, although it rarely does so.
Collection actions describe the IRS’ most powerful tools in coercing payment for late or missing taxes and penalizing late tax returns. Generally speaking, the IRS will begin collection actions via a Notice of Federal Tax Lien, which issues an official public lien on your tax account declaring everything you own to be legally claimed by the government until your tax debt is resolved.
This effectively means that, under a lien, you cannot refinance or use your assets as collateral to seek a loan without the Treasury’s and the IRS’s approval and cooperation. If a lien is ineffective, the IRS will begin seizing property instead.
When Does the IRS Seize Property?
The IRS may seize property only after delivering their Final Notice of Intent to Levy and the Notice of Your Right to A Hearing.
If you’ve waived your right to a hearing, did not use the time you were given to arrange one, or have already exhausted all of your appeals, the IRS will be within their rights to seize your property to satisfy your debt.
For things to come to this point, the following must usually be true:
- You owe a significant tax debt.
- You have not responded to the IRS’ requests to enter a payment plan or begin some sort of agreement.
- You have ignored the IRS’ tax lien on your property.
- You have missed the chance to appeal the IRS’ decision or have appealed and failed to resolve the situation through the IRS’ independent appeals office or the US Tax Court.
Once the IRS decides to claim an asset of yours, the next step is to liquidate it.
If the IRS garnishes your wages, then there is no need for IRS auctions. In these cases, the IRS works with your employer to withhold a portion of every paycheck based on your income, filing status, and current dependents.
If there are no wages to garnish or you are self-employed, the IRS may instead claim and clear out one of your bank accounts or seize property, such as an investment property, a vacation home, or your car.
If the IRS claims the real or personal property, it will endeavor to sell the property at its current quick sale value or auction it off via a designated and secure IRS auction to generate the funds to pay your tax debt. If any money is left over after the entirety of the debt is paid, that remainder is sent back to you.
What Happens at IRS Auctions?
IRS auctions are conducted either in person or via the Internet. Any ongoing or upcoming auctions can be found via the Treasury’s designated website and Real and Personal Property Sales directory.
Underneath all current listings, you will also find a link to a list of Frequently Asked Questions answered by the Treasury. These answers further clarify that bidders are requested to pay in certified checks, cashier’s, treasurer’s, and/or cash.
All property seized by the IRS must be sold via a Public Auction or a Sealed Bid Auction. The IRS auctions themselves, as well as the respective rules, are conducted by a certified auctioneer. This will usually be a Liquidation Specialist or a Property Appraisal expert from within the IRS.
Clicking on any of the listings on the link above will reveal a little more information about the listing, as well as when bidding begins, the current bid (if the auction is ongoing), and other important details, such as contact information for whom to call for further questions regarding the state and origins of the property.
Property seized by the IRS does not disappear overnight. There is a lengthy process before a property is placed on a Public Auction and sold to the highest bidder. Furthermore, these IRS auctions can last long, especially if hosted online. The IRS does not offer guarantees nor warranties on property sold via a public auction.
Can IRS Auctions Be Stopped?
Yes. If you enter a payment plan with the IRS before your property is sold, the IRS may agree to take it off the auction list until your debt is paid. Generally speaking; however, the IRS will not reverse a seizure unless:
- You’ve paid your debt in full, or;
- Releasing the seizure will help you pay off your debt or;
- You’ve entered an installment agreement that stipulates that your property cannot be sold or;
- Seizing your property has caused undue financial hardship and is hindering you from meeting your basic needs or;
- The property is worth significantly more than what is owed, and releasing the seizure will not impact the IRS’ chances of collecting.
However, even if you are too late, you still have one last chance to reclaim your property if it has already been sold. Even if a successful bid is made, the owners, heirs, executors, or administrators of the owners of the property may reclaim their property if the IRS agrees to it, in a window of 180 days after the IRS has accepted the bid. This is known as the redemption period.
The caveat is that the original owner must pay the new owner the purchase price plus interest at 20 percent per year. Interest can be calculated via the IRS website or through the help of an accountant.
What If I Cannot Pay?
If the IRS has seized and threatened to sell your property, and you do not have the means to pay back your debt, your best chance is via an installment agreement. Low-income taxpayers may even qualify for an installment agreement with a reduced debt basis, called an offer in compromise.