IRS Seizure of Assets

An IRS seizure is one of the most serious collection actions that can result from unresolved federal tax debt. Unlike a federal tax lien, which establishes the government’s legal claim against a taxpayer’s property, a levy allows the IRS to actually take property or rights to property to satisfy an outstanding tax liability. This may involve funds held in a bank account, wages and other income, or physical property such as a vehicle, business equipment, real estate, or other valuable assets.

Physical seizure of property does not normally occur at the beginning of the IRS collection process. Before the IRS generally proceeds with a levy, the tax must have been assessed, the taxpayer must have received a notice and demand for payment, and the liability must remain unpaid. In most cases, the IRS must also issue a Final Notice of Intent to Levy and Notice of Your Right to a Hearing before levy action occurs. That notice is particularly important because it may provide an opportunity to request a Collection Due Process hearing and challenge the proposed collection action or pursue an alternative way to resolve the liability.

For this reason, a threatened seizure should be taken seriously, but receiving an IRS collection notice does not necessarily mean that the IRS is about to take your home or other physical property. The stage of the collection process, the type and amount of the liability, the taxpayer’s compliance history, available equity, financial circumstances, and previous attempts to resolve the debt all matter. Understanding exactly where the case stands is the first step toward determining what can still be done.

What Property Can the IRS Seize?

The IRS has broad authority to levy property and rights to property belonging to a taxpayer, subject to statutory exemptions and other limitations. Collection can therefore reach much more than cash in a checking account. Depending on the circumstances, the IRS may levy wages, bank and investment accounts, certain retirement assets, accounts receivable, rental income and other sources of income. It can also seize and sell physical property, including vehicles, business equipment and real estate.

Not every asset, however, is automatically available for seizure, and the fact that the IRS has legal authority to levy property does not mean that every asset will be an appropriate collection target. Federal law exempts certain property from levy and places additional restrictions on other property. The IRS must also consider whether a seizure is expected to produce proceeds that can actually be applied to the tax liability after taking into account the taxpayer’s interest in the property and the costs associated with seizure and sale.

A taxpayer’s principal residence receives particularly important protection. The IRS generally cannot administratively seize a principal residence without first obtaining judicial approval, and the government must demonstrate that there is no reasonable alternative for collecting the tax debt. As a result, seizure of a primary home is substantially different from an ordinary bank or wage levy and is intended to be an extraordinary collection measure rather than a routine first response to unpaid taxes.

If physical property is seized, the process does not end when the IRS takes possession of the asset. The IRS may proceed to sell its interest in the property and apply the proceeds, after the costs of seizure and sale, toward the outstanding tax liability. Before a sale, the IRS determines a minimum bid price and provides the taxpayer an opportunity to challenge its fair market value determination. The taxpayer also receives notice of the proposed sale before the property is offered to the public.

This is one reason why addressing a collection problem before it reaches the seizure stage is usually preferable. Once enforcement has progressed to physical property, the taxpayer is dealing not only with the underlying tax debt but also with an active collection action and potentially much shorter deadlines.

Can the IRS Seizure Be Prevented or Released?

There is no single solution that applies to every threatened levy or seizure. The appropriate response depends on the amount and type of tax owed, the taxpayer’s income and expenses, assets and equity, filing compliance, collection history, and the particular notices already issued by the IRS.

In some cases, the problem can be resolved through an Installment Agreement that allows the liability to be paid over time. A taxpayer who cannot currently pay without being unable to meet necessary living expenses may qualify for a temporary collection alternative based on financial hardship. Other taxpayers may qualify for an Offer in Compromise or another collection resolution. If the proposed collection action is improper, the taxpayer may also have administrative appeal rights, including Collection Due Process rights in appropriate cases.

Timing matters because some protections are connected to specific IRS notices and deadlines. Waiting until after a deadline has passed can eliminate or limit procedural options that were previously available. Likewise, taxpayers who have unfiled returns may need to bring those filings into compliance before the IRS will approve many collection alternatives.

Even when a levy or seizure has already occurred, the situation may still be addressed. The IRS is required to release a levy under certain circumstances, including when the liability has been paid, the collection period has expired, an applicable Installment Agreement prevents the levy from continuing, or the levy is creating an economic hardship that prevents the taxpayer from meeting basic and reasonable living expenses. A release of the levy does not, however, eliminate the underlying tax liability. A longer-term solution for the remaining balance is generally still necessary.

How PLUS/AUDIT TAX Can Help

When a taxpayer contacts us about a threatened levy or seizure, our first objective is to understand the actual collection status rather than assume that every IRS notice represents the same level of risk. We can review IRS account information and transcripts, identify the tax periods and balances involved, determine whether required returns have been filed, review notices already issued, and establish whether an enforcement deadline or active collection action requires immediate attention.

With proper authorization, we can communicate with the IRS on the taxpayer’s behalf and work with the appropriate collection function or Revenue Officer. Once the immediate situation is understood, we evaluate the available resolution alternatives in the context of the taxpayer’s complete financial circumstances. Depending on the case, that may involve an Installment Agreement, Currently Not Collectible status, an Offer in Compromise, an administrative appeal, or another appropriate collection strategy.

The objective is not simply to address one notice and leave the underlying problem unresolved. A levy may sometimes be released while the tax debt remains outstanding, and without a sustainable resolution the taxpayer may eventually face additional collection activity. Our approach is therefore to address both the immediate enforcement risk and the underlying liability whenever possible.

If you have received a Final Notice of Intent to Levy, have been contacted by an IRS Revenue Officer, or have been told that the IRS may seize property, delaying a response can make the situation more difficult. Reviewing the case early provides more time to determine what the IRS has done, what deadlines apply, and which collection alternatives remain available.

PLUS/AUDIT TAX P.C. assists individuals and businesses in Colorado and throughout the United States with IRS collection and tax resolution matters.