The IRS has the right to seize property when an individual refuses, neglects or fails to pay federal income taxes owed. Whether it’s intentional or not, falling behind on federal taxes owed is troublesome. If you are concerned about losing property, then understanding property taxes and levies is crucial.
How does an IRS Tax seizure work?
The IRS cannot take your assets without going through a process that offers reasonable notification of the action against the taxpayer.
- The IRS sends a “Notice of Demand for Payment”. It’s the first notice sent by mail to inform you of the taxes owed and methods to make payments before issuing a levy.
- If you avoid the IRS, they are likely not going away. Failure to make payment arrangements can catch up to you later, if not immediately.
- The IRS sends the “Final Notice of Intent to Levy and Notice of Your Right to a Hearing.”
“Final Notice of Intent to Levy and Notice of Your Right to a Hearing”
Unlike the first notice of payment due, the “Final Notice of Intent to Levy and Notice of Your Right to a Hearing” is delivered to the taxpayer personally in order to verify that they did in fact receive the warning.
There are circumstances where the taxpayer may have not received the notice because the individual moved, and the last known address the IRS has on file is incorrect.
Once you receive a “Final Notice of Intent to Levy and Notice of Your Right to a Hearing” you officially have 30 days to appeal the notice or make payment arrangements.
Property Levy Exceptions
However, just when you thought things were fairly straightforward the IRS had to go and make things more complicated, which is why tax education is so important.
There are exceptions to the rules where the IRS does not have to offer you a hearing and therefore provide the 30-day grace period before they begin seizing property. These include:
- A DETL or Disqualified Employment Tax Levy
- The IRS issues a levy against a federal contractor
- The IRS can seize your state tax refund instead of sending the notice
- The IRS believe the collection of tax is in jeopardy
The latter two exceptions are the most troubling because they are up to some interpretation by the IRS.
What assets are subject to IRS Seizures?
- Personal property and real estate. It doesn’t matter if the assets are currently in your physical possession.
- Rent from your tenants
- Payments from clients (if you run your own business)
- Funds in personal bank account
- Retirement funds
What can the IRS not seize?
While the IRS can summon just about everything you own, there are a few items exempt from the IRS:
- Unemployment benefits
- Worker’s Compensation
- Minimum exemption for salaries and other income
- Income for court-ordered child support
- Select types of service-connected disability
- Select types of annuity and pension
Furthermore, a few personal items are protected.
- Tools required for a business, trade or other profession up to a specific value
- Furniture and household items up to a specific value
Also worth noting that the principal residence is usually not something the IRS goes after because it requires a U.S. District Court judge to approve the sale.
Collection Due Process Hearing (CDP)
If you receive a notice of intent to levy, you have the right to appeal the decision. You need to request a Collection Due Process (CDP) hearing by submitting IRS Form 12153.
It is recommended that you work with a tax professional during the CDP process as they are well informed on the appeals process and you stand to lose vital assets. Time is of the essence so seeking a quick resolution with either the IRS or a tax expect is important.