Seizure of property is a possibility because the IRS can legally do so to satisfy any neglected tax debt, but there are ways to circumvent it.
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In this article:
- What Happens Before an IRS Seizure of Property?
- Are There Cases When the IRS Can Forego These Prerequisite Scenarios?
- What Types of Property Are Subject to Seizure?
- How Is the Seizure of Property Carried Out?
- What Options Are There to Stop Property Seizure?
- Could a Tax Lawyer Be of Help in These Cases?
How the IRS Seizure of Property Works
What Happens Before an IRS Seizure of Property?
Ideally, the IRS can only proceed with property seizure once certain tax collection protocols have already been observed, to no avail. These protocols include the following:
- The delinquent taxpayer has been served with a tax bill via a “Notice for Demand for Payment.”
- The IRS deems the delinquent taxpayer to have knowingly neglected to pay their tax bill, or, at the very least, arrange a payment plan with the agency.
- The delinquent taxpayer has been served with the “Final Notice of Intent to Levy and Notice of Your Right to a Hearing.” This official letter then prompts a 30-day period, wherein the recipient has the choice to either negotiate a payment scheme with the IRS (if full payment is financially impossible) or dispute their received tax bill.
The IRS delivers the “Final Notice of Intent to Levy and Notice of Your Right to a Hearing” to the last known home address of the taxpayer in question. Preventing an IRS property seizure begins with keeping abreast of notices sent by the IRS.
Make sure that your IRS home address is up to date so you do not miss correspondences from the agency.
Are There Cases When the IRS Can Forego These Prerequisite Scenarios?
Keep in mind that not all property seizure conducted by the IRS has to go through the aforementioned protocol. Exemptions to the rule exist, wherein the agency can go straight to property seizure without having to wait 30 days for a taxpayer to request a hearing.
These cases include:
- Jeopardy levy, in which the IRS suspects tax collection is doomed to fail if not pursued ASAP
- Seizure of state tax refund via the CP504 Notice
- Tax debt collection from federal contractors
- Disqualified Employment Tax Levy (DETL)
Disqualified Employment Tax Levy Definition: An IRS levy served to employers who have requested a Collection Due Process (CDP) hearing within the past two years for failure to pay employment taxes
What Types of Property Are Subject to Seizure?
The IRS will seize most types of property with monetary value. This includes real estate, such as primary and vacation houses, as well as personal assets, such as boats, antique furniture, jewelry, and valuable artworks, among others.
The agency will also collect levied liquid assets. This includes wages, any receivable amounts from business transactions (such as rent paid by tenants or client payments), funds in bank accounts, investment portfolios, and even retirement funds.
As for assets which the IRS cannot seize, the list includes the following (among others):
- Tools essential to perform a specific trade or profession
- Unemployment benefits
- Service-related disability payments
- Pension payments
- Up to a certain amount of household furniture
How Is the Seizure of Property Carried Out?
The IRS will pursue and seize valuable assets even if they are not in the taxpayer’s physical possession. This means that if a delinquent taxpayer has a precious and pricey painting or two kept in a friend’s house, those will not be exempt from seizure.
Assets in public areas are the first ones seized by the agency. Think cars parked in front of taxpayers’ house or place of business.
Once these “public” properties have been depleted, the IRS will ask a taxpayer’s permission to venture into private premises. That, or the agency secures a Writ of Entry from the court.
As for liquid assets, such as wages, the IRS requests employers to garnish salaries via a court order. Similar rules apply to bank accounts and investment portfolios.
What Options Are There to Stop Property Seizure?
Delinquent taxpayers can make any of these options work to their advantage. These are better alternatives to property seizure.
- Collection Due Process (CDP) Hearing. The IRS gives taxpayers 30 days after receipt of the “Final Notice of Intent to Levy and Notice of Your Right to a Hearing” to request for a CDP hearing via Form 12153. Basically, this hearing equates to an official dispute of the tax bill attached to the requester’s name. To receive a favorable outcome from a CDP hearing, pertinent records and documents must be shown to the IRS to support claims of erroneous tax billing.
- Installment Payment Plan. If there have been no errors on the side of the IRS, but full payment of tax debt still proves financially improbable, property seizure can be prevented via reaching an installment payment agreement with the IRS. However, keep in mind that this option does not exempt a taxpayer from late payment fees and interest.
- Offer in Compromise. Delinquent taxpayers can make a case that it’s better for the IRS to agree to an Offer in Compromise as opposed to pursuing tax collection. Here taxpayers can specify an amount they are willing to pay to settle their outstanding tax debt. The IRS will then calculate whether the offer is favorable to them, given the taxpayer in question’s financial situation.
Could a Tax Lawyer Be of Help in These Cases?
Most definitely, yes. Tax lawyers are not only knowledgeable with tax laws and their most recent updates, but they also know how to best deal with IRS agents.
Working with a tax lawyer will help a taxpayer decide which tax relief option suits their situation best. Remember that tax cases are different from one another and there is no one-size-fits-all solution.
However, a tax lawyer can steer even the most beleaguered taxpayer in the right direction.
It pays to stay aware of how the IRS seizure of property works. This way you know what options to exhaust in order to avoid this drastic tax penalty.
Have you had any experiences with seizure of property before? Tell us how you resolved this penalty in the comments section below.
If you owe back taxes, visit taxreliefcenter.org for more information on tax relief options.