Most taxpayers have heard horror stories about the IRS taking possession of someone's assets and they may fear that this could happen to them. While it's true that the IRS has the authority to seize individual assets, this only happens in situations where a taxpayer becomes seriously delinquent on their account and doesn't take any steps to clear up their outstanding tax balance. In these cases, the agency may issue a tax lien or a tax levy. How can you prevent the IRS from seizing your assets?
What is a Tax Lien?
A tax lien is simply a legal notice that the IRS has the first claims on any profit from the sale of property. Generally, tax liens are imposed on individuals who owe a significant amount of back taxes and refuse to make any payments on their accounts. What makes a tax lien so powerful is that the claim is attached to the property, not just the taxpayer. This means that if the individual is able to sell the land, the lien remains on it and becomes the responsibility of the new owner.
How to Settle a Tax Lien
Taxpayers receive at least 30 days' notice before a tax lien is issued. During that time, they can make efforts to settle their outstanding balances by establishing an installment plan or making a lump sum payment. Since the tax lien affects the taxpayer's credit rating, it is usually best to find some way to pay off the tax, rather than to do nothing and wait for the lien to be imposed.
What is a Tax Levy?
If the IRS imposes a tax levy and the individual still doesn't settle his or her account, then the agency may pursue a tax levy. Unlike a lien, a levy gives the IRS the authority to actually seize personal assets, including a house, car, land, jewelry, and even cash. After seizing the assets, the IRS can sell them at auction and use the proceeds to settle the back taxes.
Avoiding a Tax Levy
You can avoid a tax levy by arranging to pay some of your tax balance as quickly as possible. If you're unable to do so, you may need to pursue a drastic measure such as bankruptcy. In any case, you should always consult an experienced tax adviser when you're dealing with a tax levy.
To answer our question from earlier: Yes, it is possible for the IRS to seize your assets. However, if you're diligent about paying your outstanding income taxes, you don't ever have to worry about them coming for your possessions.