Many citizens aren’t exactly clear on what the IRS can legally take from them.
If you owe back taxes, then what will happen? Will you go to jail for not paying taxes? Will you lose everything you have? In this post, we’ll explain which assets the IRS can or cannot seize.
First, let’s check the difference between levy and seizure.
Levy: This is when the IRS takes money directly from your paycheck or bank account to pay your tax debt.
Seizure: This is when the IRS takes and sells your personal property, like your house or car, to pay your tax debt.
First of all, the IRS gives you a warning. Levy or seizure is the last resort when you can’t pay your debt. After sending a “Notice of Demand for Payment”, the IRS waits for a response. If you ignore it, the IRS issues the “Final Notice of Intent to Levy and Notice of Your Right to a Hearing.”
The IRS delivers the final notice directly to you, leaves it at their last known address, or sends it by registered or certified mail. In 30 days, you can request an appeal or make a payment arrangement. If you don’t, the IRS can start taking your assets.
The IRS sets a “minimum bid” for the sale. They share this amount with you, along with the fair market value and sale notice. The IRS then publicizes the sale through newspapers, flyers, or online. They usually wait at least 10 days after the notice before selling your property.
Can the IRS seize your assets?
Yes. The IRS can legally seize your assets to collect taxes you owe.
Which assets can the IRS seize?
Any valuable assets can becomes cash, so the IRS can seize them. Typically, these items are sold at a public auction for tax debt repayment after your last chance to reclaim them.
- Properties, such as houses, vacation homes, or other real estate.
- Vehicles, boats, expensive jewelry, or other personal assets.
- Bank accounts
- Retirement account
- Saving accounts
- Life insurance
- Wages
What about smaller tax debts? If your tax debt is under $5,000, the IRS may not take and sell your assets. Instead, they might collect by taking your federal tax refunds and a part of your salary.
When the IRS puts a levy on your salary, they usually take only a part of your paycheck. This continues until they remove the levy or your debt is paid off. However, by law, they can only take a portion of your wages considering factors like your dependents.
Which assets can the IRS not seize?
The IRS can’t take property or income you and your family need to live. Here are the items they can’t seize:
- Work tools at or below a certain amount
- Personal assets at or below a certain amount
- Furniture valued at or below a certain amount
- Unemployment benefits
- Some disability payments
- Clothes
- Textbooks
- Court-ordered child support payments
- Unemployment benefits
- Worker’s compensation benefits
- Some pension or annuity benefits
Feeling Overwhelmed?
How can you protect your assets from being seized by the IRS?
- First, contact the IRS after receiving a notice from them. Explain your financial situation and learn about alternative ways for payment. If you don’t respond to their notice, the IRS will continue with its process. Besides, relief from levy or seizure is possible under specific conditions. Even though your debt may be forgiven, for example, due to incurred high medical bills, you have to prove that.
- You can request an appeal through the Collection Appeal Program if the IRS hasn’t seized your funds or property yet. Besides, you can also ask for a Collection Due Process Hearing or Equivalent Hearing. Check out Publication 1660 to understand your appeal rights better.
- You also have redemption rights after the seizure and sale of your real estate. After your real estate is sold by the IRS, you or any stakeholder can redeem it within 180 days of the sale.
What happens after my property is seized?
When the IRS seizes your property for tax debt, they sell it and use the money to pay your taxes after covering the sale costs. Before the sale, they set a minimum bid price, inform you about it, and allow you to challenge their valuation. They advertise the sale publicly, wait at least 10 days, then sell the property. The sale proceeds first cover the costs of seizure and sale, then your tax debt. If there’s extra money left, the IRS informs you on how to get a refund.
How do I get my seized property back?
You can immediately contact the IRS to resolve your tax liability and request the release of the seizure. The IRS might release the seizure if it’s causing you immediate economic hardship. However, if they deny your release request, you can appeal either before or after they seize and sell your property. Remember, releasing a seizure doesn’t exempt you from paying the due balance, and the IRS can reissue a seizure if the debt remains unresolved.
Need help?
Working with an experienced tax attorney may provide the best outcome for your situation. You can always reach us to discuss your options, such as not losing an important property or taking advantage of a tax exemption or deduction.
Call now for a free consultation.
Frequently Asked Questions
An IRS seizure is a legal action taken by the IRS where they take possession of a taxpayer’s property to satisfy a tax debt. This happens after other collection attempts fail. The IRS sells the seized property and uses the money to settle the tax debt.
Yes, the IRS can seize a taxpayer’s car for unpaid taxes if you owe the IRS over $5000. Besides, they usually don’t take your assets unless they can sell it for at least 20% more than what you owe, after they’ve already knocked down its value by 20%.
The IRS will inform seizing property as part of its collection process for unpaid taxes. However, before seizing property, the IRS usually sends multiple notices and warnings, offering the taxpayer opportunities to pay their debt or make arrangements to settle it. Seizure is typically a last resort, used only when other methods to resolve the tax liability have failed.
The IRS can seize homes for tax debts, but it’s rare and done as a last resort. They don’t want to make taxpayers homeless. They try other ways to collect taxes first.
If the tax debt remains unpaid, the IRS can issue a levy to your bank. Before doing this, the IRS will send several notices demanding payment.
A “Notice of Tax Lien” is a public document the IRS files to claim rights to your property and assets when you have unpaid taxes. It’s filed after the IRS assesses your tax debt, and you fail to pay it. This affects your credit and can make it hard to sell property or get loans.
Here you can follow news releases for the current month.
Yes, the IRS can seize inherited property for unpaid taxes after following their standard process of notices.
Yes, the IRS can take inheritance money for unpaid taxes.
Mostly, they don’t. However, they may seize your 401(k) depending on the state in which you live. Please contact us for details.
Yes, the IRS can seize your house or assets if your spouse owes back taxes, but this generally happens only if the tax debt was incurred in a year when you filed a joint tax return.
First, check your email because the IRS sends a Notice of Tax Lien. Besides, you can directly call the IRS to ask about any liens. Or you can contact your local county record’s office or clerk’s office where the property is located. Lastly, tax liens may appear on your credit report, although newer tax liens may not be reported due to changes in credit reporting laws.
A federal tax lien on real property lasts until the tax debt is paid or the 10-year statute of limitations expires, but certain actions can extend this period. The IRS releases the lien within 30 days after the debt is settled, or the statute expires.
The IRS rarely seizes property, using it as a last resort after other tax collection fail.
If you fail to pay taxes, the IRS can seize your assets, but this is usually their last resort.
