The scariest thing people consider when they owe back taxes is that the IRS will take their house. While it isn’t untrue, it’s still relatively rare for the federal government to seize property, particularly real estate.
When it does happen, you need to know what happens to that property and your chances of getting it back. What happens after the IRS seizes your property?
If the IRS seizes a home or other property, the short form is that the agency sells the property and uses the proceeds to pay your tax debt. However, that isn’t the entire story.
Before paying your tax debt, the IRS first takes the money from the sale to pay for the cost of seizing and selling the property. Then, if anything is left over, it will go toward your taxes. Essentially, your property pays for its own seizure and sale.
Types of Property Seized
The IRS can seize several different types of property. It doesn’t just go after your home.
Homes and Other Real Estate
First of all, to seize your home (primary residence), the IRS must show that:
- You owe more than $5,000 in back taxes.
- The agency has a signed order from a federal district judge or magistrate for the seizure.
If two spouses jointly own a home and only one spouse owes taxes, the other spouse may be able to stop the seizure.
Other real estate is more often prey to the IRS, including vacation homes and second homes.
Personal property, even if not in your physical possession, is fair game. So, it doesn’t help to hide that boat over at Uncle Jimmy’s. Any real estate you own can also be seized.
The IRS can seize your wages in the form of garnishment. The garnishment continues until the taxes are paid in full, or the IRS releases the levy for another reason.
If you are due any tax refunds, the IRS keeps those to apply to your back taxes. To make it all stop, you need to either pay the balance in full or enter into an installment or payment agreement with Uncle Sam.
If you receive payment from clients or rent from tenants, the IRS can get its hands on that, too.
The IRS can seize, by placing a levy, on any money in your bank accounts. It doesn’t happen immediately, however.
The bank freezes your account for 21 days, which makes it impossible for you to use. Unfortunately, you may not know the account is frozen until you bounce a couple of checks or find out you can’t get cash from the ATM.
After 21 days, the bank sends the money to the IRS. To prevent the seizure, use the 21-day period for tax resolution.
That IRA or 401(k) you have? The IRS can seize it for back taxes.
Dang! What Do You Get to Keep?
The IRS allows you to keep some personal possessions, any tools of the trade so you can work, and any livestock you may have.
What the IRS Cannot Seize
While the agency seems all-powerful, there is still some stuff it can’t have.
- A minimum exemption for salaries and other income
- Worker’s Compensation
- Unemployment benefits
- Certain annuity and pension payments
- Income for court-ordered child support payments
- Certain service-connected disability payments
- Assistance from the Job Training Partnership Act
- Furniture and household items up to a certain amount
- Tools necessary for you to ply your trade, business, or profession up to a certain amount
- Your principal residence unless they meet the requirements above for seizing your home
Still, the IRS can take a lot of your stuff.
The Seizure Process
The seizure process has three steps:
- The IRS sends a Notice of Demand for Payment, aka a tax bill
- You ignore, neglect, or fail to make payment arrangements as the IRS awaits your response
- The IRS issues a Final Notice of Intent to Levy and Notice of Your Right to a Hearing
Step 1 doesn’t take place until you neglect to pay your taxes. Step 2 is entirely in your power to change. Ignoring, neglecting, and failing to make payment arrangements means your account becomes delinquent.
Small or straightforward debts may be turned over to the IRS Automated Collections System. The ACS representatives are trained to contact by phone or in-person to work out a payment solution and set it up. They are not trained in law and cannot negotiate settlements.
In step 3, the Final Notice of Intent to Levy and a Notice of Your Right to a Hearing are delivered to you personally at your last known address. Otherwise, the IRS sends it via registered or certified mail.
You now have 30 days to appeal the seizure or make payment arrangements.
If the IRS (and perhaps a judge) decides to seize property, here’s what happens.
- A revenue officer comes to your home or business.
- The revenue officer takes assets sitting in public areas, including cars parked in front.
- The revenue officer requests access to the private areas of your home or business.
- If you consent, the revenuers enter areas like a garage or house and take any assets there.
- If the IRS seizes your home or business building, it hangs a prominent notice on the door announcing to the world what happened.
What if you say, “No!” when they ask to enter private areas? They come back with a Writ of Entry and go in anyway.
The IRS then calculates a minimum bid price for the property. Real property is set at fair market value. A public auction's time, date, and location are placed in the local paper, and someone buys what used to be your home or your stuff.
There is an added step here. You don’t have to move out right away. The new owner must file an eviction lawsuit against you in a local court. It gives you a little extra time to figure out what to do next.
The Right of Redemption gives you the right to buy your home back after the auction. However, you must pay the new owner the total bid price plus 20% annual interest within 180 days of the sale. You can use cash or certified funds.
Only You Can Prevent Property Seizure
So, there you have it. You probably want to do something about those back taxes now that you know what happens after the IRS seizes your property. Seriously, paying off your tax debt, one way or another is the only way you can avoid the IRS taking your stuff.
Contact Top Tax Defenders. We can help you do something about your tax issues and keep the IRS from selling your home, freezing your bank account, and generally causing you grief.