How IRS Property Seizures Work & How to Stop a Tax Seizure
The Internal Revenue Service (IRS) has broad powers to seize the property of a taxpayer who has neglected, failed, or refused to pay tax obligations as they became due. This legal seizure of a taxpayer’s property or assets to satisfy a tax debt by the IRS is referred to as a levy.
Types of Property Subject to IRS Seizures
Both a taxpayer’s personal property and real estate are potentially subject to levy by the IRS. Furthermore, the IRS can seize property not only in the possession of the taxpayer, but also property that is being held by another person or entity. Examples of property that the IRS can seize directly from a taxpayer include real estate, vehicles, and boats. Likewise, property belonging to a taxpayer that might be held by another and also subject to levy includes wages, retirement accounts, bank account funds or rental income.
The IRS Seizure Process
The IRS goes through a three-step process in order to execute a seizure of the taxpayer’s property. This process ensures that the taxpayer has adequate notice of the intended seizure and an opportunity to appeal or contest the proposed tax levy issued by the IRS. Without first taking these steps, the IRS cannot legally seize a taxpayer’s property, even if the taxpayer legitimately owes the tax debt.
The first step in the seizure process occurs when the IRS sends a taxpayer a “Notice of Demand for Payment,” which gives the taxpayer notice of the tax assessment at issue and demands payment from the taxpayer. Next, the taxpayer must refuse to pay the tax obligation demanded by the IRS. Finally, the IRS issues a “Final Notice of Intent to Levy and Notice of Your Right to a Hearing,” which is delivered to the taxpayer personally, left at the taxpayer’s last known address, or sent by registered or certified mail.
Requesting a Collection Due Process Hearing
At this point, the taxpayer has 30 days from the date on the IRS notice in order to ask an IRS manager to review the case, or to request a Collection Due Process hearing with the IRS Office of Appeals. If you disagree with the IRS’s tax assessment and/or the proposed seizure of your assets, then you should be sure to appeal the IRS’s decision by requesting a hearing. It is recommended you work with a tax attorney here or tax professional because you don’t want to waste your time.
At your Collection Due Process hearing, you can present your case for why you believe the IRS shouldn’t seize your property. For instance, you may think that the IRS wrongfully assessed your tax obligation, or that you have already paid what you owe the IRS. Other defenses might include your ongoing bankruptcy proceedings, expiration of the statute of limitations (the time during which the IRS must collect your taxes), or the fact that your spouse is the person who should be liable for the tax debt rather than you. Consulting with a tax attorney, will help you as well to ensure you have a strong defense.
Once you attend your Collection Due Process hearing, the IRS will make a decision about your case. You have thirty days from the date of that decision in order to further appeal the decision with the IRS Office of Appeals.
Stopping the Levy on Your Wages, Tax Refund, or Bank Account
If the IRS places a levy on your wages or tax refund, the levy will not stop until the IRS releases the levy, you pay your tax debt in full, or the statute of limitations expires, which prevents the IRS from continuing to seize your wages or tax refund. Therefore, if you are entitled to a federal tax refund each year, the IRS will seize your tax refund each year until your tax debt is paid.
A bank that receives an IRS levy regarding your bank account must follow different procedures than a levy on your wages or tax refund. When the bank receives a levy of your bank account, the bank must hold or “freeze” the amounts in your bank account that are not greater than the amount of federal tax debt that you owe for a period of 21 days. After the 21-day holding period has expired, the bank must send the money in your bank account, plus any interest that has accrued during the holding period, to the IRS in order to satisfy your tax debt.
Executing the Levy on Your Property
If you have personal property located in your home or place of business, a revenue officer first will seize any assets located in public areas. The officer will then request to enter any private areas. If you give consent, the officer will enter the private areas of your home or business, and seize those assets as well. However, if you do not consent for the officer to enter the private areas, the IRS will take steps to obtain a Writ of Entry, which is issued through the legal system with the help of the local U.S. attorney. This Writ of Entry gives the revenue officer legal permission to enter any private areas of a taxpayer’s home or business in order to seize property to satisfy the outstanding tax debt.
If you receive a notice of levy or seizure of property from the IRS, you should immediately contact the IRS Appeals Office in order to request a Collections Due Process hearing. Remember, if you miss the thirty-day window for filing your appeal, you can lose your right to a hearing. You also should contact your tax professional about any IRS tax levy, so that you can get the assistance that you are likely to need in preparation for your Collections Due Process hearing.