How IRS Property Seizures Work & How to Stop a Tax Seizure
If taxpayers refuse, neglect or fail to pay federal income taxes owed, the IRS has the right to seize their property. Property levies are one of the most severe actions imposed by the IRS. If you’re behind on your tax debt, you need to understand levies and how to avoid them.
The IRS Seizure Process
To legally seize your assets, the IRS must go through a three-step process, with some exceptions. These steps are designed to ensure that the IRS adequately notifies you and follows the law before issuing a levy:
- The IRS sends a “Notice of Demand for Payment.” In other words, the IRS sends you a tax bill.
- You ignore, neglect or fail to make payment arrangements while the IRS waits for a response.
- The IRS issues the “Final Notice of Intent to Levy and Notice of Your Right to a Hearing.”
The final notice is delivered to the taxpayer personally, left at the taxpayer’s last known address, or sent by registered or certified mail. At this point, you have 30 days to appeal or make payment arrangements. If you fail to make arrangements, the IRS can start taking your assets after 30 days.
There are exceptions to the rules above in which the IRS does not have to offer you a hearing at least 30 days before seizing property:
- The IRS feels the collection of tax is in jeopardy. This is called a jeopardy levy.
- The IRS can seize your state tax refund (with a CP504, which is not a Final Notice of Intent to Levy)
- The IRS issues a levy to collect the tax debt of a federal contractor
- A DETL or Disqualified Employment Tax Levy
However, even with these exceptions above, the IRS still must send you your appeal rights after they issue the levy.
Types of Property Subject to IRS Seizures
The IRS can seize your personal property and real estate, even if it is not in your physical possession. For example, if you have a boat stored at a friend’s house, the IRS can take that.
The IRS can also take wages, payments from your clients, rent from your tenants, money in your bank account, and your retirement funds. The IRS contacts whoever is holding your money and gets them to send it directly to the IRS.
In effect, the IRS can take almost everything you own including your home. You get to keep a few personal possessions, tools of the trade for work, and livestock if applicable. You can find a table based on filing status and exemptions to determine wages exempt from IRS levy.
Types of Property the IRS Cannot Touch
The IRS can seize a wide range of income, wages, and property. However, there are a few things the IRS will not levy:
- Minimum exemption for salaries and other income
- Unemployment benefits
- Worker’s Compensation
- Income for court-ordered child support payments
- Certain annuity and pension payments
- Certain service-connected disability payments
- “Job Training Partnership Act” assistance
- Tools necessary for trade, business, or profession up to a specific value
- Furniture and household items up to a certain amount
- Principal residence in most cases because it requires a U.S. District Court judge to approve the sale
Requesting a Collection Due Process Hearing
If you receive a notice of intent to levy, you can appeal by requesting a Collection Due Process (CDP) hearing. You need to submit IRS Form 12153 (Request for a Collection Due Process or Equivalent Hearing). To ensure the appeal is successful, consider working with a tax professional.
At the collection due process hearing, you present your case for why the IRS shouldn’t seize your assets. For instance, you may argue that the IRS incorrectly assessed tax liabilities or that you already paid the debt. If you believe that your current or ex-spouse should only owe the tax, you may be able to bring those arguments forward. Your tax professional can help you identify other reasons for an appeal.
Once you attend your CDP hearing, the Office of Appeals will decide your case. If you don’t agree, you have 30 days to submit another appeal.
Stopping the Levy on Your Wages, Tax Refund, or Bank Account
If the IRS levies or garnishes your wages, it continues until you pay the debt in full or the IRS decides to release the levy. During this time, the IRS will also keep all tax refunds and apply them to your tax debt. To stop the wage garnishment, you need to pay the tax debt or enter into some agreement with the IRS. Look to work with a tax professional.
If the IRS decides to levy your bank account, the bank freezes the funds for 21 days. Then, the bank sends the money to the IRS. To stop the levy, you need to quickly set up an agreement or resolution with the IRS during the 21-day holding period.
How a Property Levy Works
If the IRS decides to seize your property, a revenue officer comes to your home or business. First, they take assets in public areas. For example, they may tow away vehicles parked in front of your house. Then, they will request access to private areas of your house or business. If you consent, they will enter those areas (garages, homes, etc.) and take assets located there.
If you don’t give the revenue officer permission to enter your private property, they will get a Writ of Entry. Similar to a warrant, this is a legal document obtained from the courts. It gives the revenue officer legal permission to enter private areas of your home or business to seize property.
Getting Help to Stop a Tax Levy
If you receive a notice of intent to levy, you should immediately contact the IRS or tax professional to handle the problem on your behalf. It is also a good idea to respond to the IRS notice by requesting a CDP hearing as well. If you miss the 30-day window for filing your appeal, you can lose your right to a hearing. You also should contact a tax professional so you can get help to prepare.