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When Can The IRS Seize My Assets?

REasons why the IRS might seize your assets

In some ways, mortgage bankers and tax collectors are a lot alike. Many bankers like to say that they do not foreclose on loans because they want the houses; they just want the payments. Notwithstanding allegations that bankers targeted certain groups during the mortgage crisis, that’s probably true. This sentiment is also true with regard to IRS tax seizure rules. The IRS does not particularly want a used boat or a few shares of stock. Instead, it wants the taxpayer to satisfy an outstanding obligation, and a seizure is the collections tactic of last resort in this area.

Read on to discover some of the policy considerations behind tax seizures. If you fit the profile, contact an attorney straightaway before the IRS pulls the trigger on an asset seizure, and it’s probably only a matter of time before that happens.

Initial Tax Seizure Policy Matters

Basically to scare recalcitrant taxpayers into action, some late night TV commercials imply that the IRS may seize almost anything at the drop of a hat. But according to Section 5.10 of the Internal Revenue Manual, agents must lay a considerable amount of groundwork first, including:

  • Liability Verification: Rather unsuprisingly, this step is not very involved. Moreover, if the taxpayer either does not timely respond to correspondence or simply rehashes liability arguments that the Service has already disregarded, the process is somewhat akin to a summary execution.
  • Alternate Methods: The agent must “consider” an offer in compromise, installment agreement, bond or levy in lieu of asset seizure based on factors including tax compliance, financial status, and taxpayer cooperation (more on that below).
  • Determine Equity: To ascertain an asset’s value, the Service uses 60 percent of the fair market value — the reduced forced sale value — as a base, then subtracts senior incumbrances, such as joint ownership interests or senior lienholders, and associated expenses, like storage fees and auction costs.

The IRS cannot seize a house which contains more than $7,720 in personal property or if the taxpayer owes less than $5,000, and agents must obtain a supervisor’s permission before they seize an asset with a “marginal” amount of equity.

Who Does the IRS Target?

Tax seizure policy separates taxpayers who “will pay” or “can’t pay” from those who “won’t pay.” Many policymakers wrestle with this distinction, because the categories often overlap. For example, a California speeding ticket costs several hundred dollars, when considering add-ons, and there is considerable debate as to whether motorists “can’t pay” or “won’t pay” said fine. But the IRS claims it has a foolproof way to separate the sheep from the goats.

  • “Will Pay” or “Can’t Pay”: If the taxpayer is in currently not collectible status, needs time to secure a loan, or is working with the IRS to resolve the matter, there will be no seizure.
  • “Won’t Pay”: On the other hand, such action “should be considered” if the taxpayer has defaulted on a prior agreement, uses “unsupported tax arguments,” or is able (though not necessarily willing) to satisfy the debt by any other method.

Significantly, the IRS only considers the taxpayer’s current status to make this determination and not future events, such as pending retirement or looming unemployment.

The bottom line is that if you have an equity asset, a disputed tax debt, and you’re not acting fast enough to please the IRS, tax seizure policy essentially requires the Service to take such action. In a future post, we’ll look at some practical aspects of tax seizure and what must happen before title actually transfers.

Venar Ayar, Esq.

Venar Ayar, Esq.

Attorney-at-Law, Master of Laws in Taxation
Principal and founder, Ayar Law

Venar is an award-winning tax attorney ranked as a Top Lawyer in the field of Tax Law. Mr. Ayar has a Master of Laws in Taxation – the highest degree available in tax, held by only a small number of the country’s attorneys.