It’s a topic often seen in movies and TV, and the occasional real-life cautionary tale about paying your taxes on time that makes it into the newspapers: the IRS swoops in and just takes your home. But what would cause this situation to happen in the first place? Can the IRS take my home if tax bills go unpaid for too long? Unlike how our entertainment frequently strikes fear of the IRS into our hearts, there’s an entire set of procedures, operating standards, and due process that the IRS is upheld to.
IRS seizure of your primary residence is also not as common as the media would have you believe. According to the most recent audit from the Office of the Treasury Inspector General for Tax Administration (TIGTA), the oversight agency that watches over IRS activity, only 359 property seizures were actually done in the mid-2016 to 2017 fiscal year even though hundreds of thousands of levies get issued every year. TIGTA also found that only three seizures violated IRS conduct standards. Given that more than 152 million tax returns were filed in both calendar years, IRS seizures represent a percentage so fractional it has to be expressed in scientific notation.
But if your tax debt snowballs, having the IRS take your home is still a risk. Here’s what you need to know about IRS property seizures, how they happen, and your rights concerning collections and the levy process.
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What Does it Mean When a Property is Seized?
The term “IRS property seizures” tends to conjure up these images of the IRS making you homeless in order to satisfy unpaid tax bills. However, if you’re wondering if the IRS can just seize your property simply because you owe taxes, what they’re really most likely to do is put a lien on your income or property with the option to respond and appeal. A lien can turn into a levy, which is when the actual seizure process begins. You can get the IRS to drop levies in certain cases.
Property seizure means that your property enters government custody and the sale is used to pay down your tax debt. If the proceeds don’t fully repay your obligations, you still owe the remaining balance. In the case of home sales, if your tax debt is fully repaid and there’s money left over, the IRS will send you the difference.
What Kind of Property Can the IRS Seize?
Homes are not the only kind of property that can have a lien put on them. The IRS can also put a lien on your bank account, retirement assets, vehicles, and anything else with a title can that can be seized.
It’s not just your bank and retirement accounts that are at risk if you have unpaid tax bills. The IRS can seize all kinds of property, such as:
You can also face wage garnishment, or payments from clients and tenants taken away, and any tax refunds you normally would have received will be applied to your tax debt. Up to a certain amount of your income can be garnished based on how often you get paid and how many dependents you have. Some types of income, like unemployment benefits and workers’ compensation payments, and child support, cannot be touched by the IRS. Furniture, clothing, tools of trade required to earn income, livestock, and other assets are also exempt from property seizure in most cases.
The IRS is freer to seize nonessential property like vacation homes and boats. However, if your tax bills have gone unpaid long enough and no actions have been taken to get an IRS lien off your property, they can go after your home next but only with the approval of a U.S. District Court judge. They do not need judicial approval for other types of property. The judge is not likely to approve IRS seizure of your primary residence if your home is not valued very highly, you are making a good faith effort to pay your taxes and make an arrangement with the IRS, and/or you have a precarious financial situation.
Can the IRS Take Your Primary Residence?
Since property seizures are time-consuming and costly, the IRS will try to work with you first on making some kind of arrangement for your back taxes. But if that does not happen and they cannot contact you, assets with more liquidity (can convert to cash the fastest) like retirement assets get priority for IRS enforced collections. All of your assets are at risk of being seized by the IRS if you have not made any payments, or offered to settle your back taxes, but the IRS could seize your primary residence if your cash and other liquid assets can’t fully repay your tax debt upon liquidation.
Can the IRS Seize a Jointly Owned Property?
Assuming there is judicial approval, owning your home jointly does not automatically disqualify it for seizure. If you own your home jointly with your spouse, or a non-spouse co-owner like a family member, the IRS can still seize it even if the other owner does not have any delinquent taxes.
Can the IRS Take Your Home if You Have a Mortgage?
If, like most American homeowners, you have a mortgage, you need to get rid of the tax lien before you can refinance or sell your home. If you’re unable to get rid of the lien, you need to contact the IRS to work with your mortgage servicer, as special rules have been enacted due to the economic downturn resulting from COVID-19. However, simply having a mortgage does not stop the IRS from trying to seize your home if your other assets are insufficient for paying off your tax debt and no payment agreements have been made.
How Long Does it Take for the IRS to Seize Property?
First, a lien has to be placed on your property or income. The IRS files a public document called a federal tax lien if you have neglected your delinquent taxes and not taken any effort to pay them or notify the IRS of your situation.
A lien simply gives the IRS the right to lay claim to your property. A levy is when the actual seizure process begins.
Simply having unpaid tax bills or making your payments late will not cause a federal tax lien to erupt. If the IRS sees that you are making good faith efforts to pay your balance due, they will send you automated notices of your balance and apply any tax refunds from future years towards your balance but otherwise not take any collection actions.
However, if you have not made payments or any actions to take control of the situation like going on a payment plan, it can take a few months or even years of inaction before a lien appears.
If the lien placement still does not cause your tax debt to be repaid or arrangements to be made, the IRS can levy your income and/or assets. You are given a final notice, the CP-90 notice, of intent to levy your property and you have 30 days to respond and appeal the IRS’ decision. Once the 30 days are up, the seizure process begins.
Can the IRS Foreclose on Your House?
They certainly can, as once a federal tax lien is filed, it gives them the right to foreclose on your home. If you have other debts, the public notice that gets filed with the lien alerts creditors that the government gets priority upon liquidation of your assets.
What Happens After My Property is Seized?
The IRS gives 10 days notice before making any property sale public, whether it’s your house or any personal or business property. If you can make arrangements with the IRS before then, you may be able to stop the sale. Upon seizure, the IRS sets a minimum bid price which you can challenge. They also send you a notice of the sale and follow through with the 10-day window before the general public can bid at the government auction.
You can also plead hardship to get the levy dropped and seizure process halted. While it does not release you from your obligation to pay your back taxes, it could stop any seizures from occurring.
How Do I Get My Seized Property Back?
If the property was already seized and you want to stop it, you need to act immediately. You can request a seizure release if the property seizure is causing an immediate economic hardship, such as losing your income and area median rent being significantly higher than your mortgage payment. An unsympathetic judge could still allow your home seizure to proceed despite this.
The IRS can then deny or approve this request, and you can appeal their rejection so this buys some time beyond the 10-day window. It’s within your rights to request that your property gets returned.
The IRS is also mandated to release your property if the seizure causes economic hardship, as well as the following situations:
Since you still owe the taxes that are due, you need to pay them or make an arrangement or else you run the risk of your property being seized all over again.
Stop IRS-Enforced Collection Activity
While IRS collection actions can seem scary, the agency is required under law to provide you with due process and several options to pay your tax bill, and not cause an undue hardship if you are low-income and/or experiencing financial distress because of the pandemic.
Pay in Full or Get into An Agreement to Avoid Seizure
Even though property seizure is actually relatively rare as far as IRS collection actions go, it’s still a risk you could take if you neglect your unpaid tax bills. Natural disasters, illness and temporary disability, divorce, domestic violence, and other hardships can cause you to fall behind on your bills. This is doubly so if you experience loss of income in these situations, and taxes are yet another financial burden on top of living expenses and starting over. Even if you let your tax issues backslide because you’re busy, it can create a snowballing tax debt situation that you’ll want to get under control as soon as possible.
The best way to avoid this situation altogether is to communicate with the IRS and tell them what’s happening, because you have options outlined in the Taxpayer Bill of Rights. One of those rights is the right to confidentiality, so if you are in a dangerous situation like fleeing domestic violence, the IRS will not alert the abusive party as to your location just because you inquired about how you can legally delay your tax payments. Conversely, you also have the right to privacy so you need not volunteer any more information than is necessary to halt any collection actions.
You can take the following preventative actions after you find out how much you owe, or discuss them with a revenue agent if the collections process has begun.
Make Your Account Temporarily Uncollectible
A fast and easy way to temporarily avoid any levy against your property is to have your taxpayer account made currently not collectible (CNC).
You expect to be able to pay the bill once you find a new job, but selling any of your assets to satisfy the debt would cause an undue hardship. For most economic hardships like this and the types outlined above, CNC status will usually be approved right away. However, if the IRS determines you can still make a payment based on the information you disclosed about your financial situation and prior tax return data, you have a right to appeal their decision. One of the most common reasons for denial is that you have missing tax returns, so you should file them even if you cannot pay the balance due.
CNC status still obligates you to pay your taxes, and interest and any penalties related to late filing will still get assessed. However, the IRS won’t be able to place liens on any of your assets or income. They will send you a written notice once your account is out of CNC status, so if you are still experiencing financial difficulties and have not made payments, you should contact the IRS right away.
If you can’t pay your entire balance at once, even after you’ve liquidated your assets and/or gotten some extra income, you can apply for a payment plan. Short-term payment plans take 120 days or less, long-term installment agreements exceed 120 days.
Short-term payment plans are free to set up, but long-term plans have a $31 setup charge if done online; this charge is waived if you meet low-income guidelines. You have to pay by direct debit from your bank account if the balance is more than $25,000. These payments are automatic. If automatic payments do not fit your financial situation, as is the case with many self-employed individuals, the fee is $149 while low-income taxpayers are charged $43 and it may be reimbursed.
Payment plans can also be revised at any time for a $10 fee, which is waived for most low-income taxpayers.
Offer in Compromise
You have the option to settle your back taxes with an offer in compromise (OIC). You still have to make a good faith attempt to pay your tax bill to the best of your ability when you apply for one, and there is a $205 application fee unless you are low-income or your reason for applying is doubt of liability.
Doubt of liability OICs are for when you don’t think your taxes were correctly assessed. Doubt of collectibility OICs are more common, they are for taxpayers who are trying to prove that collecting the taxes due would cause the IRS too much trouble with collection actions when they’re unable to pay what they owe. If the OIC is accepted, it can reduce or even eliminate the taxes due.
You need to have all prior year tax returns filed (plus current year returns or extensions) in order to successfully apply for an OIC.
Have Tax Shark Negotiate with the IRS on Your Behalf
Communicating with the IRS can be a daunting prospect. Tax Shark is here to represent you before the IRS. Our tax law experts have thorough knowledge of IRS procedures and may be able to negotiate more favorable terms than you can. Our tax resolution services are available for taxpayers seeking tax relief. Contact us for more information.