The IRS Asset Seizure Process
A previous post examined the basic policies of tax seizures, and we learned that a lot of things must happen before the IRS takes action. However, once the IRS asset seizure process wheels start moving, they might very well grind you up.
The best way to stop asset seizures in the policy phase is with policy arguments, perhaps relating to doubt as to the tax debt, questions about the amount of equity in the asset, or the taxpayer’s classification as “won’t pay” as opposed to “can’t pay.” In the procedure-driven second phase, the best way to overturn a tax seizure is with procedural arguments.
Asset Seizure Groundwork
IRM Section 5.10 outlines the asset seizure process, including the pre-seizure steps that all agents must take.
Account verification is the first step. If the taxpayer files bankruptcy, the show’s over, because creditors, including the IRS, can do nothing in these situations without special permission from the bankruptcy judge. Or, if the taxpayer has made recent payments or received a tax credit, the mathematical formula will need to be recalculated, and the outcome could very well weigh against an asset seizure instead of for it. If the seizure violates IRS policies, there is evidence of negligence.
The IRS must also properly account for the interests of any innocent third parties and “ensure” that they are not “injured by the seizure action.” This step is particularly important if the action involves leased premises, like a rent house, or property that affects domestic animals or livestock, like a barn.
When IRS agents arrive, and there is almost always more than one of them, they cannot enter any private areas without the owner’s permission or a legal writ. If the “rightful occupant,” who is almost always the taxpayer, refuses consent, the agents can gently point out that the next step is obtaining a writ, returning in force, and storing the seized property offsite, which means higher costs and lower sales proceeds.
If there is evidence that the taxpayer is removing property and hiding it, “exigent circumstances” exist, so agents neither need consent nor a writ to enter private property. Such evidence includes:
- Moving trucks at the scene,
- Property being secreted, and
- Stall tactics.
There must be actual evidence of current removal as opposed to well-founded suspicion that something might happen later. Even in these situations, agents cannot enter a private area if there might be a breach of the peace.
It may be a good idea to deny consent during the asset seizure process, because a tax attorney probably has a chance to contest the writ. Then again, there’s a lot of truth to the old adage that if you fall into a hole, the first thing to do is stop digging.
Most federal judges and magistrates do not hold hearings prior to issuing writs. Instead, they simply review an IRS declaration which must establish the following facts:
- Tax was properly assessed,
- Taxpayer is “recalcitrant,”
- IRS issued a demand for payment, and
- Probable cause to believe that there is seizable property at that location.
Many judges also require the IRS to certify that the taxpayer does not have an attorney before they grant ex parte relief. If the taxpayer has counsel, there will most likely at least be a telephone hearing.
Notice of Seizure
The final stage in the asset seizure process may also be the most important one, because a breakdown here will almost certainly invalidate the seizure at a later date.
- Notices must be personally delivered to the taxpayer, not to a secretary or the taxpayer’s spouse. If personal deliver is impossible, nail-and-mail may be appropriate.
- Every senior lienholder must also receive written notice.
- Delivery must occur “at the earliest possible time after the seizure,” which probably means as agents are leaving the premises.
That last item might be the easiest notice requirement to challenge, because in the chaos of a contested seizure, agents are often in no mood to loiter at the scene and complete paperwork.
It is not easy to stop the asset seizure process once it begins, but if an attorney cannot derail the process at the philosophical stage, there are some procedural arguments to make that can at least minimize the fallout from this procedure.