If you owe back taxes and you don’t make payment arrangements, the IRS may seize your assets. The agency has unparalleled power to seize assets – they can take a significant portion of your assets, but they can’t take everything.
To reduce your stress and help you understand what to expect, this guide will educate you on everything you need to know about the IRS asset seizure and steps you can take to protect your assets.
Key Takeaways
- The IRS can seize houses, cars, a portion of your wages, bank accounts, retirement savings, and more if you have unpaid tax debts.
- The IRS must notify you before seizing your assets.
- To protect yourself, appeal when you receive a Final Levy notice.
- Setting up payments or securing relief options before the IRS starts a levy can protect your assets.
- The IRS offers payment plans, offers in compromise (OIC), and currently not collectible status to help taxpayers with tax debt.
What Triggers IRS Asset Levies? The Path to Seizure
The good news is, the IRS can’t wake up one morning and decide to seize your property. They follow a procedure that includes several notices and an opportunity to address your situation. In a nutshell, here are some triggers that may lead to asset seizure:
- You have a huge unpaid tax debt: The IRS is likely to prioritize taxpayers with higher levels of tax debt.
- You’ve ignored multiple notices: Before seizing your assets, the IRS will send several notices demanding payment, including CP504. CP504 says that the agency is going to seize your tax refund and move on to taking other assets – it’s often the last notice you get before the levy notice.
- You’ve received the Final Notice of Intent to Levy: After you receive a final notice like Letter 1058 or LT11, you have 30 days to respond. Failure to respond or make payment may lead to the IRS to levy your bank accounts, wages, or other assets.
Assignment to a revenue officer is another red flag that asset seizure may be imminent. The revenue officer must still send you the right notices, but this is a sign that the IRS is getting ready to escalate collection actions.
Types of Assets the IRS Seizes
What can the IRS seize, and what can’t it take? Below are assets the IRS can seize to pay tax debt, in order of the assets you’re likely to lose:
The IRS’s Most Likely Targets for Seizure
- Wages and Salary: The IRS can take a portion of your paycheck to repay your tax debt. Wage garnishment continues until your debt is fully paid.
- Bank Accounts: Banks have to comply with IRS bank levies; the IRS can seize savings, checking, and even joint accounts (with a taxpayer’s name on it).
- State Tax Refunds: The IRS is allowed to take your state tax refund to offset your back taxes, covering any tax debt you may have.
Things the IRS is Less Likely to Take (But Still Possible)
- Personal Property: The IRS can seize and auction non-exempt personal property, including boats, cars, aircraft, and RVs. However, the IRS doesn’t not seize leased vehicles or those used for work purposes. The IRS can also take luxury items and valuables such as collectibles, jewellery, and artwork if they can be sold to pay your tax debt.
- Business Assets: If you’re a business owner or you’re self-employed, the IRS can seize accounts receivable (they can intercept your customer payments to your business and use them to pay your tax debt) and business bank accounts. The IRS can also seize and auction other business assets, including equipment and inventory.
- Retirement Distributions: If you can access your retirement funds, so can the IRS, and they can levy the retirement accounts (for example, your 401(k)) to pay your debt. The IRS can only seize funds you have the right to withdraw.
Things the IRS is Far Less Likely to Take
- Your Primary Residence: While the IRS has fewer restrictions when it comes to seizing land and undeveloped property, as well as vacation homes and rental properties, it’s different when it comes to primary residences. To seize a taxpayer’s home, the IRS must obtain a court’s approval and prove that there’s no other way to collect taxes from them.
- Tools of Your Trade/Profession: The IRS may be able to seize your tools of trade/profession to pay the tax you owe. However, there are limitations and exemptions to this. The law says that the IRS cannot seize “books and tools of a trade, business, or profession of an individual taxpayer” worth up to $3,125 in value.
- Basic Necessities: The IRS can’t seize certain personal items such as clothing, undelivered mail, necessary school books, and certain types of furniture and household items.
- Certain Protected Benefits: The employer-sponsored ERISA-protected 401(k) plans may require additional legal steps before seizing. For example, if you have a defined-benefit pension plan through your employer but have no right to withdraw until retirement, the IRS can’t seize those funds.
Understanding Your Rights and How to Avoid Seizure
Receiving an IRS seizure when you’re going through financial hardship can feel like the nail in the coffin. It’s overwhelming and hard to see a way through it. However, there are several actions you can take to resolve your tax debt with the IRS and still keep your home, bank accounts, and vehicles.
Here are some of the options we recommend:
Respond to IRS Levy Notices
As we mentioned before, the IRS can’t start garnishing your wages or seize your bank account without notifying you. They send several notices to taxpayers before they start seizing assets.
Once you receive a collection notice, here’s what you can do:
- Verify your tax liability: The IRS can make errors, which can lead to incorrect tax bills. Double-check your account and old returns to ensure you owe the amount the IRS is claiming you owe.
- Request a Collection Due Process (CDP) Hearing: Once you receive a Final Levy notice, you can request a CDP hearing for one month. After that, you have a year to request an equivalent hearing. The CDP request will stop the levy from going forward and allow you to talk to an IRS appeals officer about payment alternatives. The equivalent hearing generally won’t stop an in-progress levy, but it will allow you to discuss options.
- Look into the Collection Appeals Program (CAP): The CAP is another appeals option that you may want to consider if you’re facing an asset levy.
Consider Available Payment Methods
The best way to avoid having your assets seized is to make payment arrangements. You must set up these plans before the IRS starts the levy. Although making payment arrangements after a levy is in place may be possible, it’s much more difficult at that point.
- Installment agreement: The IRS allows taxpayers to pay their tax debt in monthly installments if they are unable to pay the total amount in full. Once the payment plan is approved, the IRS won’t seize your property as long as you stay compliant.
- Offer in compromise (OIC): With an OIC, you suggest a payment amount lower than what you owe to the IRS. If they accept your offer, you pay the settlement, and the remaining balance is erased. You must prove that you’re paying the most you can afford to pay or that it would be inequitable to force you to pay more.
- Currently Not Collectible (CNC): The IRS can set your account on CNC status if you can prove financial hardship. The IRS considers you for economic hardship when you can barely pay your basic living expenses. The IRS pauses its collection efforts when you’re approved for the CNC status, but it can resume collection efforts when your financial status changes.
- Seek professional help: Although you may be eligible for CNC status, OIC, or installment agreements, the approval process can be daunting. For example, in 2023, the IRS approved only 42% of the submitted OICs. There are also many cases of taxpayers who end up with unaffordable monthly installment agreements. A tax attorney can help evaluate your finances, see what option is best, and negotiate the best available offer for you.
At Wiggam Law, we have successfully helped many of our clients reduce their tax debts through an Offer in Compromise, collectively saving them millions of dollars. We’ve also helped our clients negotiate reasonable installment agreements that don’t become an unaffordable burden. If you need help with tax debt, schedule a consultation with us and let us help you explore your potential and best options.
Frequently Asked Questions (FAQ)
How can I stop the IRS from seizing my property?
You can appeal the seizure for 30 days after receiving the Final Intent to Levy notice. You can also avoid asset seizure by setting up an installment agreement or applying for an OIC or CNC before the IRS starts the seizure. Consult with a tax attorney for help.
Is my retirement savings at risk of an IRS levy?
Yes, the IRS can seize your retirement accounts to cover unpaid tax liabilities. However, they can only seize the funds available for you to withdraw, and they must give you at least 30 days’ advance warning.
Can the IRS take money directly from my paycheck?
Yes, the IRS has the right to garnish your wages to cover any tax you owe. What’s more, the IRS doesn’t need a court order to start taking money directly from your paycheck. They just need to send you the proper notice.
Get Help and Avoid IRS Asset Seizure
Receiving the IRS property seizure notice can be very devastating; it’s like watching all the work you’ve put in over the years go down the drain. However, it doesn’t have to get to that point. You have options, and you can take back control of your tax debt.
At Wiggam Law, we help stop wage garnishments, bank levies, and other IRS seizures. We will fight for you and protect your bank accounts, real estate, investments, and business assets from the IRS. If you’ve already received your final notice, scheduling a consultation now could be what makes all the difference. Don’t wait – let the team at Wiggam Law help you today. Call (404) 233-9800 or contact us through our website.
