It’s often the deepest fear of any of us who have tax problems. You might be used to getting emails, calls, and scary-looking collection letters from the IRS and other affiliated agencies, so we totally understand why you might be a bit scared. But what will happen if your tax bills just keep going on unpaid? Can the IRS just come in and take your house? This is obviously a scary thought, and the answer is a bit complicated. Our skilled tax attorney discusses below.
What Laws Keep the IRS from Taking My House?
According to the IRS collection process, the IRS can (and will) come after liquefiable assets if you owe money. The good news for tax debtors is that there are limitations outlined by the Internal Revenue Code, which the IRS operates under.
When Can’t the IRS Come After My Property?
Firstly, if your tax debt is under $5,000, the IRS cannot legally come after any of your property. They can threaten you and come after other assets, but they cannot seize your property.
Even after that, the Code stipulates that certain items and property cannot be seized if they are classified as basic necessities. This includes (in most cases), your primary residential home, your primary vehicle, items necessary for your work or business activity, and necessary furniture and clothing.
What Other Property Can the IRS Seize?
In addition to a home and other real estate property, the IRS can seize other personal property that can be considered financial assets, including jewelry and other precious metals or gems, collectibles, vehicles, and non-essential business assets.
The IRS can also come after financial assets, such as savings accounts, investments, bonds, and even wages, after a certain amount called the minimum exemption . As these are liquid assets, in many cases, they may come after them before thinking of your house or other property.
Can All Liquid Assets Be Seized by the IRS?
Just like with property, there are limitations on what liquid assets the IRS can seize.
Certain types of income, such as disability, workman’s compensation, child support, and wages up to a certain level based on your number of dependents, are all exempt from seizures. The same applies to savings accounts.
In What Cases Can the IRS Seize My Primary Residence?
While the IRS has few restrictions on seizing vacation homes or investment properties, for the IRS to take your personal home, they must first obtain approval from a U.S. District Court judge. A judge isn’t likely to approve such a request if you are not in a good financial situation and your home isn’t considered luxurious.
Rest assured that an IRS seizure is very unlikely to make you homeless. Only if a judge deems your financial position to be such that you can comfortably make other living arrangements would a court ever approve the seizure of your personal home.
What If My Property Is Jointly Owned?
Jointly owned property is not exempt from seizures from the IRS. Even if your spouse, partner, or other co-owner does not owe any delinquent taxes, the IRS can still seize any property which can be considered an asset of yours. If the home is not your primary residence, no court order is required.
If a court order is required, a judge is only likely to consider joint ownership if you are cohabiting your primary home with a partner.
What If My Property Has a Mortgage?
Having a mortgage on your home also does not exempt your property from seizure. The full value of your property, minus what you owe to the mortgage company, is considered fair game for the IRS.
That being said, if your personal equity in the property is small, the IRS may not consider it worth the effort to come after your home and may seek other assets instead.
How Often Do IRS Seizures of Property Happen?
Given all the above-mentioned legal restrictions on when and what the IRS can seize, the good news is that IRS property seizures are quite rare.
In 2021, according to the US Treasury Inspector General for Tax Administration, out of over 10 million Americans who owed tax debts to the IRS, there were only 96 cases of property being seized to pay back taxes.
Why Is Seized Property by the IRS So Rare?
The IRS goes to great lengths to reconcile tax debts and get debtors to pay back taxes voluntarily before having to go to such extreme measures.
If you wish to keep ignoring the warning notices from the IRS, we nonetheless recommend making sure that you’re aware of the risks and what the IRS can do if your tax debt continues to snowball. Trust us – it won’t be good!
What Happens When the IRS seizes a Property?
Property seizures are a very long and expensive process, which nobody (neither you nor the IRS) wants. As such, the IRS will spend quite some time, usually many months or even years, trying to make arrangements for you to voluntarily pay back taxes before even beginning seizures.
They will send you letters, deduct money from future tax refunds, and make movements to get you to pay through a tax court, with hopes that you’ll pay voluntarily. Only if you continuously fail to pay or respond to their notices will they likely come for your property.
Is There Any Way to Stop the Seizure Process?
Even once the process does begin, it is a multi-step process, and you have the opportunity to appeal at any stage (more on this later).
In most cases, if you can show that you are making the best possible effort to pay back taxes given financial circumstances, they will hold off on the seizure process. Of course, if you pay the taxes you owe at any point, the process will be halted, and you’ll get to keep all of your property.
How Long Does it Take for the IRS to Seize Property?
If you are not making any payments and your unpaid taxes are continuing to snowball into the double or triple digits, after a matter of months (sometimes years), the IRS may place a tax lien on your property.
A lien can be thought of as a final notice. It isn’t a foreclosure or a levy. The property is still yours, but the IRS has filed a legal claim to it. Upon receiving a lien, you will usually have 30 days to respond and either file an appeal or repay your tax debt.
What Happens When a Federal Tax Lien Placed on My Property?
If you fail to file an appeal or pay back your tax debt within the notice period, the lien will convert to a levy. This is when the actual seizure of the property occurs. Tax Levies on property mean that the property is now in the custody of the federal government. The IRS will most likely try to sell the property to turn its value into liquid money, which they can use to repay your tax debt.
If the funds received don’t fully repay your tax liability and you still owe taxes, you’re still on the hook for your remaining tax debt, and the IRS will likely continue to come after other assets you own. If the sale of your property generated more money than was necessary to clear your tax debt, the IRS is obligated to refund you the difference.
Can I Stop the IRS From Taking My Property?
If your property has been seized by the IRS with a tax levy, your options are limited, and you need to act quickly. But there are still options.
The IRS will give you a minimum of 10 days notice between placing a tax levy on your property and putting it up for sale to the public with a minimum bid price. After that, there will likely be another notice of sale (usually also 10 days) before the government will begin accepting bids from the general public. During this time, you can still pay back your tax debt or file an appeal to lift the levy.
Can I Appeal an IRS Lien or Levy on My Property?
In short, yes you can. The IRS is required by the US constitution to apply due process when it comes to collection and seizure of your property. They are also required by law not to cause any undue financial hardship.
What Can’t I Do With an Appeal?
It should be noted that appealing IRS tax levies or federal tax liens will not release your obligation to pay back taxes. If you owe taxes to the IRS, the only way to do this is to pay back your entire tax bill. There are ways to delay payments or pay in installments, which can be used as the basis of certain appeals.
It should also be noted that there is no guarantee that the IRS will accept your appeal. If the IRS decides to deny an appeal, it will go to court for a judge to mediate. If it’s denied, you’re back to square one.
Appealing on the Grounds of Financial Hardship
If you can justify that seizure of your property will lead to immediate economic hardship, the IRS will likely be lenient. The IRS needs you to pay back taxes after all, and if they seize your house and make you homeless, you probably won’t be able to pay them much, after all!
If the property is your primary home residence and you can show that your current income and other non-seized assets do not add up to enough to afford to cover rent in your area, a judge will be unlikely to approve the seizure of your primary home.
Can I Appeal on Financial Hardship Grounds if the Property Seized Isn’t My Primary Residence?
Even if the property isn’t your primary residence, a financial hardship appeal can still be an option, though it may be more difficult, as a court order isn’t required for such seizures.
If you’re renting out the property and your rental income is one of your primary sources of income, or the property is key to the operation of your business, you may be able to argue that you will have a better chance at paying back taxes with the property than without it.
Start Paying Your Tax Bill with a Payment Plan
If you can’t afford to pay your tax debt all at once, you can begin paying on a payment plan. If the IRS agent sees that you are committed to this and have the financial resources necessary, they will likely lift the levy.
How do IRS payment plans work
The IRS offers tax debtors a number of both short-term and long-term payment plans for tax debtors to pay back taxes. Fees are relatively low, and payments are usually debited directly from your bank account automatically under the installment agreement.
Payment plans can be revised at any time for a fee of only $10, but use this sparingly! If the IRS sees that you’re trying to get around your payments, they may come back for your house again.
Make an Offer in Compromise
If you can prove that, due to your financial situation or otherwise, it is unlikely that you will be able to pay off your taxes fully, you may be able to file for an offer in compromise, or OIC.
There is a fee of $205 for filing this, and of course no guarantee that the IRS will approve it, but if successful, it can greatly reduce your tax debt.
How to file an offer in compromise
When filing for an OIC, you will need to show that you are making a good effort to pay the portion of taxes owed that you can afford. You will also need to have all prior tax returns filed accurately for the application to be considered.
Filing the application for an OIC can be a bit complex, and it’s essential to ensure that everything is filed correctly before submitting it, as there isn’t much room for appeal. If you plan to go down this route, you must work with a tax professional or tax lawyer.
Need Help Reducing Your Tax Debt and Avoiding a Tax Levy?
The IRS can be scary, and the thought of having your house taken away can certainly make things a whole lot worse! If you’re at this stage in tax debt, you certainly want professional legal assistance. Our tax law experts and tax professionals can help you file an appeal and negotiate the most favorable terms with the IRS to relieve your stress and, most importantly, keep your home. Call Seattle Legal Services, PLLC today at 206-895-7268 to learn how we can help!