Table of Contents
Many clients come to us with a seemingly simple question: Can the IRS take your house? To put it simply, the IRS does have the legal authority to seize your property. It’s crucial to recognize that as a taxpayer you have choices. O’Bryan Law Offices is here to explain why and how the IRS confiscates a house and what you can do to avoid it.
It’s natural to be concerned about the loss of your house to the Internal Revenue Service if you’re having problems and owe taxes. Engaging the IRS personnel and receiving complicated warnings may be a stressful experience. That’s why it’s best to have a Louisville bankruptcy attorney on your side to help navigate the process. Call today at 502-400-4020 for a free consultation.
Is It Possible for the IRS to Seize a Home if My Tax Payments Are Outstanding for an Extended Period of Time?
The media regularly instills dread in us towards the IRS. However, the IRS is subject to a comprehensive system of protocols, operational standards, and due process.
Someone’s primary home being seized by the IRS does not occur frequently. Despite the fact that large numbers of levies have been issued each year only 359 property seizures transpired in 2016-2017. Merely 3 seizures were deemed to be in violation of IRS behavior rules, according to the Treasury Inspector General for Tax Administration. With over 152 million tax returns submitted across those fiscal years, IRS confiscations constitute a tiny portion.
However, if your tax issues grow too large, the IRS potentially could seize your residence. It is important to understand IRS property seizures, including how they occur and what legal rights you have throughout the levy process.
Why Do People Lose Their Homes and Their Businesses to the IRS?
While the IRS has the right to seize your property, home, or business, they more than likely won’t. When you display tax debt on your tax return, that means you haven’t paid your previous year’s taxes. You owe money to the IRS in the following year alongside your tax bill. These are called back taxes. The continued lack of payment on these taxes will encourage the IRS to take action and collect on unpaid back taxes.
They can seize your property with the use of a tax levy. With this, the IRS has the ability to collect from your wages, bank account, and any other personal property. Internal Revenue Code (IRC) § 6334 is what allows the IRS to garnish any of these, so long as they aren’t exempt. Exempt assets include unemployment benefits, child support, and more. Though they have this right, it is not likely.
Only about 300 homes each year are seized out of a national total of 139,000,000. The IRS prefers to collect on liquid assets, or assets that are more readily converted into funds. Examples include earnings, bank accounts, and future tax refunds. Remember that there is no exemption for your primary residence on IRC §6334. However, it is one of the last assets to collect on or from.
Tax levies can cause problems other than the loss of your home. If the IRS uses tax levies and collects from your wages or bank accounts, you are at risk of missing out on other obligations. So instead of losing your home to an IRS seizure, you may lose it as a result of a foreclosure by the mortgage company. There are other collections that have a higher risk of impacting your life than the risk of a property seizure from the IRS.
When Do You Know You Are at Risk of the IRS Seizing Your Home?
The anxiety of owing taxes to the IRS is already overwhelming without the additional concerns of losing your home. However, these concerns often don’t have much weight. While it is possible, it is very unlikely.
Here are a few key questions that can help you determine if you’re at risk of a property seizure by the IRS, as well as some solutions.
Is There Equity on Your Property?
The IRS is unable, by law, to collect on it if it does not. Equity is the fair market value of the property, minus what is owed for mortgages. In many circumstances, the IRS will proceed to discount that fair market value by a minimum of 20% for calculations.
How Much Do You Owe?
The more you owe, the more likely and insistent the IRS will be in deciding to collect from you. While there are no specifics for this, the IRS will be less inclined to act on collecting on a lesser amount, especially with a property seizure. Though, the risk of collection from the IRS will function in tandem with your debt owed and the property’s equity. If you’ve ever wondered, “If I pay a collection will it be removed?”, we recommend reading our related blog on collections removal.
Have You Been Cooperative?
When you don’t cooperate, an IRS agent will likely use that as fuel to pursue collections. The more uncooperative, the more disdain they will feel. This could be simply not returning phone calls to a Revenue Officer, not responding or complying with a financial information request, ignoring collection letters or demands, or not staying up to date on taxes and payments.
The more negative interactions you’ve had with the IRS, the more at risk for a property seizure you are. Do not do or say anything that could potentially wrath of the IRS. You will only be doing yourself a disservice.
Has an IRS Revenue Officer Tried to Contact You?
These officers are the only ones with the authority to pursue and fulfill high-level seizures. In contrast, IRS ACS (Automated Collection Service), a 1-800 number from an IRS-operated call center, is unable to collect on your property. A Revenue Officer will make a personal visit to your residence or office. There is no looming risk of property confiscation if you have yet to be reached out to by this agent.
Have You Received a Final Notice of Intent to Levy?
The IRS is unable to seize any property without sending you a Final Notice of Intent to Levy (CP506) first. This applies even if you are at a high risk of seizure. Once this Final Notice is sent and received, you have a limit of 30 days to file a collection due process appeal with the IRS.
Once it is filed, the IRS is floored in their attempts to take your property. If you are uncertain if this Final Notice has been sent and received, you can verify through transcripts of IRS actions on your account. One of our legal professionals can help you do this.
This appeal can do a few things:
- It can place a hold on any pending IRS seizure.
- It can reassign your issue to the IRS office of appeals to resolve. This typically leads to better and more beneficial negotiations.
- It can give you the opportunity to negotiate and reach a settlement without the IRS disregarding you and collecting your debt.
- It can allow you to use the U.S. Tax Court to double-check and reevaluate any and all IRS judgments on the collection of your possessions.
There are alternatives to collections that can save you from losing your property. Even if you are at risk, alternative resolutions with the IRS exist. These include installment payment plans that compensate the liability instead aggressive and invasive collections. Bankruptcy can also thwart IRS confiscations, compelling them to abide by a court-ordered installment agreement.
In addition to the Final Notice of Intent to Levy, property seizures must be enforced by the U.S. Department of Justice with a foreclosure lawsuit in U.S. District Court. Seizures and sales cannot be accomplished by the IRS alone. Tax laws mandate judicial approval first by a district court judge.
It is important to understand that the IRS must follow a specific process. By knowing more about this process and the details that suggest you are at risk, you will be better prepared to communicate and negotiate with an IRS Revenue Officer or Appeals agent. With your defenses, the collection due process appeals, collection alternatives, and foreclosure lawsuit defense, you can prevent and safeguard your property and prevent yourself from being subjected to unreasonable economic hardship.
Our legal team here at O’Bryan Law Offices is well-equipped and prepared to help you with any and all stages of the process. If you choose to file for bankruptcy, we have extensive experience in that area.
Tax Levy vs Tax Lien
A tax levy and a tax lien are the most common methods for major IRS tax debt collection. A federal tax levy can result in more problems than just the intended repossession or confiscation for debt and unpaid taxes. This can be put on any classification of property that isn’t expressly excused. Tax levies are more typically employed to collect on earnings or bank accounts.
A federal tax lien, on the other hand, is more likely to be implemented if the IRS is not ready to or is unable to collect on a property. It does not entail a property seizure at all. Rather, it establishes a legal claim on the property to guard IRS interests. This goes for most types of property but is more appropriate for real estate properties. If it sells, a portion of all profits will be claimed by the IRS. Federal tax liens can be released if the proceeds are adequate and sufficiently pay off any tax liability of the taxpayer.
What Kind of Property Can the IRS Seize?
Eligibility criteria for the property that the IRS is able to seize and collect on for tax debt and back taxes are looser than just home and business properties. A lien can be placed on anything with a title, including:
- Bank accounts
- Retirement funds
- Vehicles – boats, RVs, additional automobiles
- High valued personal property – fine jewelry, collectibles
- Precious metals
- Life Insurance policies
- Secondary properties – rental, vacation
- Business equipment/inventory – beyond the minimum
Wage garnishment, client payments, or regular tax refunds are all more easily liquid assets that the IRS would be inclined to collect and apply towards your tax debt. Primary residential property is NOT EXEMPT, but it is at the bottom of the list. It also requires the approval of a U.S. District Court judge.
However, no other properties require this same approval. There is also no automatic exemption for a jointly owned property with a spouse or non-spouse such as family. The IRS can still confiscate the property even if the co-owner does not possess any delinquent taxes. The judge is unlikely to approve a residential seizure if it is not valued highly, or if you are already making good faith payments efforts, if you are trying to make an agreement with the IRS, or if you are facing financial hardship.
Property That’s Exempt From Tax Levy
The IRS is unable to touch property that falls under Section § 6334 of the Internal Revenue Code. This includes the following:
- Clothing, apparel, and school books
- Fuel, provisions, furniture, personal effects, and livestock (not exceeding $6,250 in value)
- Tools and books of the trade (not exceeding $3,125 in value)
- Unemployment benefits
- Undelivered mail
- Certain annuity and pension payments
- Worker’s compensation
- Child support
- Minimum exemption on income
- Service-connected disability payments
- Public assistance payments
- Exempted residences
IRS Home Seizure Auction
Once the IRS Revenue Agent has seized your property for any outstanding debt, the IRS can sell your home for fair market value at an auction. Before the auction, it will be reported to the public with a date and time in a local newspaper’s legal notices section as well as the bulletins of local IRS offices and federal courthouses.
Even if your home is in an auction, you are not forced to leave the premises immediately. The new owner will be required to launch an eviction lawsuit with a local court. COVID-19 federal or state eviction moratoriums may apply, which allow you more time to stay and plan your move before eviction. If you find yourself asking, “How long does an eviction stay on your record?”, read our related blog post to learn more.
Also, you have the Right of Redemption: the right to buy back your property from an auction. You will have to pay the full bid price, as well as the 20% annual interest within 180 days of sale with cash or authorized funds. Home seizure is irregular, but different types of real estate will vary in this. Secondary residences or vacation properties are more likely to be confiscated.
Is There a Way to Stop the IRS From Taking My House?
The Collection Due Process (CDP) [IRS Form 12153] protects taxpayer rights and enforces procedures and standards for the IRS to adhere to. This process also gives you the ability to prevent or stop the IRs from taking your property.
The IRS can seize only if it follows a specific process. It starts with sending a 1058 letter, aka Final Notice of Intent to Levy. This is a notification of intent and includes when you should have your hearing with the IRS Appeals Office before the levy can commence. This is the first opportunity to stop the process before it begins. You may even be able to attain a “Currently Not Collectible” (CNC) status, which means that the property either won’t sell for adequate compensation or would cause “significant hardship.”
The IRS would first target anything else you have of value before your house, so if you are able to get this you might bypass the entire issue. Though, CNC is not permanent and is liable to periodic review. This will help with your mortgage balance decreasing or property value appreciation. Yet, if the property is mobile or on rented land, the CNC has the potential to be a lasting status.
Other ways to receive tax relief and prevent IRS seizure are listed below.
Settle with the IRS
Payment plans or payment in full are ways to prevent them from collecting on the property as a result of your unpaid tax bills. There are understandable reasons for falling behind, which could all help if you decide to pursue an appeal and in negotiating the arrangements for settlement plans. Even if your tax debts are a result of procrastination or distraction from other more pertinent issues, they can all snowball and become a larger problem.
The most effective way to evade this crisis entirely is through proper communication with the IRS about your circumstances and discussing your options provided by the Taxpayer Bill of Rights. One of these is the right to confidentiality, which can be especially important in precarious issues such as domestic violence. Note that another right you have is to privacy, so no more information has to be provided than you are comfortable with. The following three settlement options are preferred for positive discussion with the IRS.
Offer In Compromise (OIC)
An OIC allows for the taxpayer and IRS to reach a settlement for less than the amount originally owed. Though this option won’t usually apply to those who are capable of paying in full. Qualification for an OIC requires that you have filed all tax returns, made estimated tax payments for the year, and made federal tax deposits for the quarter if necessary. This OIC option is rarely accepted unless the amount agreed on is at least the same amount or more than the “reasonable collection potential” (RCP). This is the measure of taxpayer payability and accounts for all of their assets collectible on, but it also accounts for basic living expenses minus their income.
OICs are commonly accepted when there is (1) doubt as to liability, (2) doubt to collectability, or (3) accommodation founded on effective tax administration.
Partial Payment Installment Agreement (PPIA)
A PPIA allows for a portion of your debt to be fulfilled in monthly installments until tax liability expires. The IRS has a max of 10 years to collect after the date of filed tax returns. This option can lead to large tax savings, but it depends on the amount owed and your disposable monthly income. They will account for payability, income currently, current expenses, and present equity/assets.
Eligibility for PPIA is difficult to achieve as all tax returns must be filed. It may require estimated tax payments, not having received an OIC, not filing for bankruptcy and no asset equity that the IRS would prefer. The approval process for a PPIA might mean the IRS will inquire about all of your personal financial information, substantiation of expenses, and recent bank statements. A tax professional and attorney is highly suggested for this route for negotiating on expenses and low monthly payments.
The process to gain PPIA starts with a Collection Information Statement, then an Installment Agreement Request, followed by the inclusion of a tax return. They may request more information, in which case tax professionals will significantly help in communication and in defending your position. A PPIA can be reviewed every 2 years and may be changed to be higher monthly payments. Note that no levies or garnishments of wages are able to be placed against you once a PPIA is approved, but liens on you and your property still can be.
Installment Agreement (IA)
An installment or payment plan with the IRS will allow for an extension on the timeframe in which you are able to pay off your debt. If you qualify for a short-term payment plan there will be no user fee. Generally, with this action, the IRS is prevented from levying. Though, the IA will be pending until reviewal. Rejection of an IA provides you only 30 days of suspension before the collection period begins again.
Defaulting on an IA will result in possible termination, a 30-day suspension, and then a collection period. If you are approved for an IA, personal amounts more than $25,000 and business balances over $10,000 must be fulfilled through Direct Debit.
File a Form 911 with the Taxpayer Advocate’s Office
A Form 911 Request for Taxpayer Advocate Service Assistance will request economic hardship assistance as the loss of a residence would cause considerable hardship. The IRS will pause throughout a Taxpayer Advocate case review. You may also contact your congressperson in a last-ditch effort. You can still submit an appeal after denial of this request, which will proceed to tax court.
File for Bankruptcy
Filing for bankruptcy can help you save your house, though there are requirements that must be met. Our Louisville bankruptcy attorneys have made major impacts in the lives of many of 20 years with our Bankruptcy Planning and Asset Protection.
Chapter 7 bankruptcy can halt a residence from being seized through certain income tax discharges, but it doesn’t eliminate liens prior to bankruptcy. On nondischargeable tax debt, chapter 7 bankruptcy can’t do much, unfortunately.
Chapter 13 bankruptcy allows you to establish an installment plan to fulfill your debt. This will protect your property for as long as you make payments until completion. Chapter 13 can prevent additional interest and penalties on payments to the IRS, shorten the time you are required to make payments, and lessen your payment total. Chapter 13 bankruptcy can help with nondischargeable debt by the use of a payment plan to manage over 3-5 years. Old, unsecured IRS debt can be discharged as well as nondischargeable debt being fulfilled.
Section 362(a) of the bankruptcy code eliminates the IRS discretion to release a levy or seizure. Once a bankruptcy is filed, within 24 hours the levy or seizure should be released. It also prevents the IRS from pursuing federal tax liens.
Note that bankruptcy filing may eliminate you from other settlement avenues with the IRS, such as a PPIA.
Our Experienced Bankruptcy Lawyers Are Ready!
We understand that dealing with agencies such as the IRS can be intimidating, stressful, and confusing. Our law firm has Bankruptcy lawyers who value every attorney-client relationship. A tax and bankruptcy attorney can be quite helpful in complicated situations. Our attorneys are adept at understanding and appealing an IRS decision. We can contact the IRS on your behalf for negotiations and positive communication. With 20 years of experience, O’Bryan Law Offices’ bankruptcy attorneys know how to navigate even the most complex situations. If you are confused or in desperate need of counsel, contact us at 502-400-4020 for a free consultation.