IRS Asset Seizure: What Can Be Seized & How to Stop
If you don’t pay your tax debt, the IRS has the right to seize your assets. The IRS can take property, homes, cars, boats, and many other assets and then sell them to cover your tax debt. Although this is an uncommon levy method used by the IRS, you should still understand how it works if you have delinquent tax debt.
How IRS Property Seizure Works
The IRS can only take your property after the following steps have taken place:
- The IRS demands payment.
- You don’t contact the IRS or make arrangements to take care of the tax debt.
- The IRS issues a final notice of intent to levy and gives you 30 days to respond.
If you don’t appeal or make arrangements within 30 days, the IRS can legally seize your property. The IRS physically takes your property. Then, the IRS provides you and the public with a notice of sale. Ten days later, the IRS sells the property, usually at auction.
Typically, before selling the asset, the IRS gives you an estimate of the fair market value of the property. You can contest that amount if you don’t agree. However, the process is complicated, and you should seek help from a tax professional.
Exceptions to the 30-Day Rule for Property Seizure
Although the IRS usually has to provide 30-days notice, there are four exceptions to that rule:
- If you are a federal contractor, the IRS can seize payments without giving you 30-days notice.
- If the IRS believes it may not be able to collect the tax debt, it can use a “jeopardy levy” to seize assets without warning.
- The IRS can seize state tax refunds without giving you notice.
- Through a Disqualified Employment Tax Levy, the IRS can seize assets without warning. This only applies to payroll taxes and only in situations where you have appealed a prior assessment in the last two years. The IRS can only seize assets for payroll taxes from periods not related to the appeal.
Outside of these exceptions, you should appeal if the IRS seizes your property without giving you proper notice.
Types of Property the IRS Can Seize
The IRS can take wages, funds from your bank account, retirement accounts, stocks, bonds, Social Security benefits, and real property such as cars, homes, boats, and similar items. The IRS can even take rent from your tenants and payments from your clients. Basically, the IRS can take almost everything you own with just a few exceptions.
Can the IRS Take Your House?
Yes, the IRS can, but it is not common. The Taxpayer’s Bill of Rights does discourage this collection action, especially for primary residences. Taking someone’s home is generally a last resort for the IRS and is a result of a complete lack of cooperation from the taxpayer. The IRS is required to obtain a court order before seizing property, and one IRS collector cannot make the decision alone. It is much easier for them to garnish wages or seize funds from a bank account. For the IRS to get to the point of considering seizure of a home, the taxpayer likely is jumping through a lot of hoops and hiding assets, lying about income and avoiding the IRS as much as they can.
Property the IRS Cannot Seize
The IRS cannot seize tools of the trade or livestock. You need those assets to work and pay your tax debt. Additionally, you are allotted a minimum amount of income, and the IRS cannot take anything you earn under that threshold.
On top of that, the IRS cannot take any of the following assets:
- Benefits received through the unemployment program.
- Workers’ compensation payments.
- Certain payments from pension plans and annuities.
- Service-related disability payments for veterans.
- Assistance from the Job Training Partnership Act.
- Income that you need to make court-ordered child support payments.
- School books.
- Personal possessions and furniture up to a certain value.
- Undelivered mail.
- Certain amounts of fuel and provisions.
- Assets that are worth less than the expenses related to the seizure and sale.
The IRS can take your primary residence, but that is extremely rare. A US District Court judge must approve the seizure of a home.
How to Stop or Release a Seizure
Stop/Prevent IRS Seizure
If any of the following are true, you need to contact the IRS immediately to stop the seizure:
- You already paid your tax bill.
- The statute of limitations has expired on your tax debt.
- If the IRS releases the levy or stops the seizure, you will be able to pay your tax debt.
- You already set up an installment agreement to make payments to the IRS.
- The seizure creates an undue hardship, and you can’t meet your basic needs.
- The tax debt is related to a case of identity theft.
- Your spouse or ex is exclusively responsible for the tax debt.
There are a few other ways to stop a property seizure. To find the best solution, you should contact a tax resolution specialist.
Additional Options When the IRS Threatens to Seize Property
If the IRS sends you a final notice of intent to levy assets, you can stop the levy by making arrangements with the IRS or taking other steps:
To help taxpayers, the IRS has numerous payment options. If you set up a payment plan before the seizure happens, your assets are safe. The IRS offers a variety of installment agreements that you can use based upon your financial situation. Below are types of agreements the IRS offers:
- Guaranteed Installment Agreement: This type of agreement is best if you owe $10,000 or less. The $10,00 only applies to actual tax debt and doesn’t count interest and penalties. It is also required that you have (and spouse if applicable) filed your tax returns for the past 5 years, you are not in bankruptcy, currently don’t have an installment agreement with the IRS, haven’t had an offer in compromise accepted recently, estimated tax payments are up to date (if applicable), you agree to file and pay all taxes during the duration of the agreement, your employer is withholding enough from your paycheck, and your taxes can be paid off over the next 3 years or before the statutes expire.
- Streamlined Installment Agreement: This type of agreement is best if you owe less than $100,000. This type of agreement doesn’t require detailed financial information. The IRS requires that you need to pay off the entire balance, including penalties and interest, in seventy-two months or less (or before the collection statute expiration date). This agreement also comes with other stipulations which you can read about more in the detailed section of streamlined installment agreements.
- Financially Verified Installment Agreement: If you don’t meet the requirements for a guaranteed installment agreement or a streamlined installment agreement a financially verified installment agreement may be appropriate. The IRS requires taxpayers that owe over $100,000 to verify their financial details before accepting a payment plan. The IRS also requires individuals who owe between $50,000 and $100,000 and aren’t willing to set up direct debit payments to verify their financial details. Read more about the forms and other stipulations of setting up a financially verified installment agreement.
- Partial Payment Installment Agreement: This type of agreement is when you make payments towards your debt that are lower than the required monthly payment amounts in the three types of payment plans listed above. With this type of agreement, all tax debts owed may not be paid off by the collection statute expiration date. If your financial situation doesn’t improve over the term of this agreement and the IRS doesn’t require an increase in the payment amount, the IRS will forgive the remaining debt.
If you don’t have a lot of money or assets, you can stop collection activity by getting declared uncollectible. If you can prove to the IRS that the collection of the debt at the current time will cause undue financial hardship, then the IRS will stop collection actions. The IRS does have guidelines on what they allow in expenses per month based on where you live, family size and other factors. If you can show to the IRS that you are experiencing financial hardship with providing your current expenses combined with your income and assets, they may declare you uncollectible. Uncollectible status generally is a temporary solution but can help until your financial situation improves.
An offer in compromise is an offer to the IRS to settle the tax amount owed for less. Filing an offer is generally a complex filing process and can help those taxpayers who have a small probability of actually ever paying off the debt. When an offer is filed, the IRS will stop any collection actions against the taxpayer until the offer is accepted or rejected. If your offer is accepted and you adhere to the requirements, the levy will be released, and your account will be in good standing with the IRS.
Tax professionals understand how the IRS works. They can guide you toward the best solution to protect your assets and take care of your tax debt. They can also communicate with the IRS on your behalf. It is always a good idea to consult with a professional when you cannot qualify for a guaranteed or streamlined installment agreement. A qualified tax professional can work quickly to ensure they file all documents appropriately and meet deadlines to prevent any assets from being seized.
Getting Your Seized Property Back
You can apply to get seized property back in select situations. If the IRS has already sold your property, you may be able to get the proceeds back. Typically, you have nine months to request the property back.
If the IRS denies your request to get the property back, you can appeal in the following situations:
- The seizure was premature or in violation of the law.
- The IRS didn’t follow the right protocol. For example, the agency didn’t send a final notice of intent to levy assets.
- Getting the property back will allow you to pay your tax debt.
- You set up an installment agreement, and the agreement states that the IRS can return seized property.
In cases of property seizure, you have 180 days to get back the property. You must reimburse the purchaser for the price of the property, plus pay interest at a rate of 20 percent annually.
Finally, if the IRS lost a payment, mistakenly seized property, or made a processing error on a direct debit installment agreement, you can apply for a refund of bank fees. For instance, this rule applies if the IRS seizes funds in your bank account by mistake and you incur insufficient funds or returned check fees. To apply for a refund for bank fees, use Form 8546 (Claim for Reimbursement of Bank Charges). If the IRS rejects your claim, you have the right to sue for damages, which is no easy task.
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