The IRS can seize property if need be. However, the process behind seizing property is lengthy, and the seizure itself is usually a last resort. If the IRS finds that a taxpayer is unwilling to cooperate or cannot fulfill their obligation to address their tax debt to the government, the IRS may issue a levy on their tax account. A levy is a legal and physical claim of property or value – the IRS can take the contents of a bank account, part of your paycheck, and yes, the IRS can take your car or house. When an IRS seize property is issued, it does so for one simple reason: to sell it. What the IRS wants is money to recoup your tax debt. It will not wait for a reasonable buyer or haggle for a good down payment.
When the IRS claims the property, it sells it at its minimum bid price, according to its fair market value determination, to engender a quick sale. You will be given time to respond to the levy and the claim itself. You can also answer and challenge the IRS’s determination of your property’s value. Once a public notice is sent out, you have ten days to stop the sale of your property before the IRS goes through with it. You must hurry to stop your claimed property from being sold. The IRS will only consider a seizure release if you prove your commitment to repay your tax debt. While you rarely need to pay off your entire debt before the IRS will consider letting go of the seized property, it is a bit more complicated than sending a single monthly installment.
When Does the IRS Seize Property?
A physical levy is often the IRS’s final resort for tackling taxpayer debt, aside from threatening a criminal charge for tax evasion. Suppose you have ignored the IRS’s requests to pay your debt. In that case, they will escalate their collection actions from a simple lien (a legal claim, superseding other creditors and forcing you to acknowledge the government as your debtor) to a levy on your monies and property. In some cases, the IRS will accelerate the process towards a levy if:
- You owe a substantial amount.
- Your debt has gone unnoticed for quite some time, and the IRS is running out of time to collect.
- There is a worry that you might be trying to leave the country (the IRS can lock down your travel documents).
The process for seizing property does not occur overnight. When the IRS issues a notice of intent to levy, for example, you have up to 30 days to respond before the agency takes action. After the IRS seizes your property, you have more time before the agency determines your home’s quick sale value. Once the IRS has given a public notice about the potential sale of your property, you have another ten days before buyer bids are accepted. The IRS cannot claim your primary residence if you owe less than $5,000 back taxes.
Additionally, the IRS needs approval from a federal district judge. You are within your rights to dispute the seizure and any other step along the collection process through the collection due process hearing, the IRS appeals process, and the US Tax Court. Your chances of winning an appeal depend on your position. If you do owe the debt, were given ample time to respond, and did not contact the IRS to explain your situation at any point, you will have a more challenging time appealing against the agency. Always consult a legal professional before you consider an appeal.
Does the IRS Claim Property Often?
No, actually. It is pretty rare for the IRS to claim the property. The IRS can empty out bank accounts and coerce payment by withholding a portion of your paycheck through your employer. The IRS may also seize assets – but it will rarely seize real estate. However, that doesn’t mean it cannot happen. The IRS has claimed people’s homes in the past and sold them on the market. The IRS claims investment properties and vacation homes more often than primary residences.
By and large, it does not intend to make you homeless, and as a taxpayer, you can argue that you have the right to avoid becoming financially destitute due to the IRS’s collection process. In addition to vehicles, assets, homes, and even paychecks, the IRS can claim payments from clients and tenants and dip into your retirement fund. What is off-limits? Not much, honestly. If you own livestock, the IRS lets you keep them. Furthermore, the IRS will not claim your tools-of-the-trade – so a tailor gets to keep his Singer, for example. A few other things the IRS cannot claim include:
- Furniture and household items.
- Worker’s compensation.
- Unemployment benefits.
- A minimum exemption for income.
- Court-ordered child support.
What Happens to IRS Seize Property?
The IRS does not sit on your property for very long. If you have received a notice of intent to levy, you need to act fast to reverse the seizure. Once the property is sold, there isn’t anything you can do to unsell it. The money earned through the sale will be used to recoup the IRS’s losses from the seizure, and the remainder will go towards your debt. Anything left over (if the value of your property outstrips your debt) is sent back to you.
Can I Prevent an IRS Levy?
By entering a payment agreement with the IRS, you can prevent a levy after receiving your final notice. However, you cannot prevent a levy through any old payment agreement. Some agreements allow you to prevent a levy and even reverse asset seizure. Most IRS payment plans are voluntary. You fill out a form that determines your monthly installment payment for the next six years, and you have the option of paying more to reduce the length of the agreement. Afterward, you deposit the money every month until your debt is paid. Under an agreement, the IRS may limit or stop its collection actions.
If you want the IRS to stop a levy, you must go the extra step to guarantee your payment. That usually means filling out Form 433-F, Collection Information Statement, to clear up your financial status and provide the IRS with ample information to prove that you will not default on your payments, as well as a direct debit agreement, which allows the IRS to claim your monthly contribution from a designated account. Alternatively, you can arrange to have the monthly installment taken out of your paycheck.
What If I Cannot Pay My Tax Debt?
Installment agreements must be initiated online (if your debt totals under $25,000) or via Form 9465, Installment Agreement Request. An installment agreement request can determine if you can afford to pay your debt within a reasonable time frame (72 months). If you cannot, you may be able to negotiate a partial payment plan or an offer in compromise through the services of a tax professional. When the IRS intends to claim your property, your top priority should be getting in touch with them and seeking legal representation. You can reverse the seizure and save your property if you act swiftly.