TaxCure WP

A Tax Pro’s Advice: Avoiding IRS Seizure of Assets

How to Protect Your Assets from IRS Seizure: A Tax Pro’s Guide

The IRS can seize (levy) assets to pay your outstanding tax liability. That’s the hard news. The good news is that there are several steps you can take to avoid the seizure of your assets. Being proactive and creating a plan as soon as possible is the best way to avoid the loss of your home, bank account, or other assets.

Let’s focus on what an IRS seizure is and how to avoid it. You should also be aware of your rights if the IRS takes action against you.

What Is Legal Seizure of Assets by the IRS?

The IRS can seize assets if you have an unpaid tax debt. The IRS does not want to own your assets, but it does require you to pay what you owe. If you do not voluntarily pay your taxes, the IRS may seize property such as:

  • Your wages and any other income you have, including garnishing your paycheck or seizing Social Security benefits
  • Bank accounts, including checking, savings, and deposit accounts
  • Personal and business property, including real estate, vehicles, equipment you use to run your business, or other assets
  • Life insurance cash value
  • Inherited assets
  • Accounts receivable from your business
  • Cryptocurrency, including digital assets such as Bitcoin

If you are at this point right now, we suggest contacting a tax attorney for immediate guidance. The sooner you act, the more likely you are to protect your assets from IRS seizure.

How to Protect Your Assets from the IRS

If you are behind on your taxes, take action as soon as possible to rectify the situation. Realistically, most people in this position cannot afford to pay outright to cover the total cost of their tax debt. However, there are options available that may be able to help you.

  • Payment plans: A payment plan with the IRS allows you to make payments over a period of time. If you cannot afford to pay in full, but have income, you can use this option. Various types of payment plans exist.
  • Offer in compromise: An offer in compromise is a very effective strategy for those who are able to pay something towards their debt but not all of it. You have three options potentially available to you, which your tax lawyer can help you compare. In some cases, the IRS will accept a lower offer if you can pay your debt within a shorter period of time – for example, if you pay the settlement within five months, it'll be lower than if you opt to pay it over a 24-month period.
  • Partial payment installment agreement: You make smaller monthly payments than the minimum on a traditional payment plan, and then, at the end of the collection period (about 10 years after the assessment date), the IRS waives the remaining balance. You must submit detailed financial information to qualify for a PPIA.
  • Currently not collectible: You prove that you cannot afford to pay, and the IRS stops all collection actions, including tax levies. Again, you must provide financial information to get on CNC status. 

Other tax settlement solutions exist, giving you a way to get out of this tax hold in most situations. The best way to avoid legal seizure of your assets is to enter into one of these agreements – but you need to do it before the IRS starts taking your assets. These options may still be available once asset seizure has started, but by that time, options are more limited, and the process is much harder.

How Long Does It Take for the IRS to Seize Property?

You can expect the IRS to take action within weeks to months of when you incur the tax debt or default on a payment arrangement. Here’s what the timeline for legal tax seizure typically looks like.

  • Notice received: The IRS will send you a Notice and Demand for Payment (for example, CP14). This is the first indication that the IRS is ready to take more aggressive collection efforts. Respond to it. Set up a payment plan.
  • Follow-up notices: Over the next several weeks, the IRS will send additional notices to you regarding the debt owed and its plans to collect on it. This is usually in notices CP501, CP503, and CP504. Again, you can respond to these with payment in full or to set up a payment plan.
  • Final Notice: If you don't respond to those notices, the IRS is ready to take action. It will issue the Final Notice of Intent to Levy to you. This is a final warning, giving you 30 days to set up a CPD hearing request. If you don't take action, the IRS will move forward with a levy.
  • Post 30 days: If you’ve still not taken action, the IRS can legally seize your assets, per the warning they provided. They will seize financial assets, like cash accounts, first, and apply them to your debt. They can also seize real estate and other tangible items and sell them at auction, using the proceeds to pay the debt owed.

Throughout this process, you may be able to navigate around some of the challenges and set up a resolution, but what you should not do is ignore the situation. Even if you cannot afford to make any payment, due to health, losing your job, or any other reason, you may be able to file for hardship relief. 

The key to protecting your assets from legal seizure is to work with the IRS. That’s not easy to do, and they don’t always want to provide you with the easy solution. Working with a tax attorney, then, allows you to know your rights and explore all potential routes to reducing your tax risks.

What Is the CDP Hearing?

In that final notice, you’ll have 30 days to request a Collection Due Process (CDP) hearing. This hearing allows you to work with the IRS to set up a resolution. You can also challenge the proposed levy with an IRS Appeals Officer. During this process, you can present various defense strategies that could help you to find a level playing ground with the IRS.

Some potential defense strategies to consider include:

  • The seizure would create financial hardship, including preventing you from meeting your routine and basic living expenses.
  • The proposed levy is against exempt assets.
  • The IRS made procedural errors that would make the levy invalid.
  • You don’t believe the debt is valid – you can only bring this defense forward at a CDP hearing if you haven't had a previous opportunity to dispute the tax debt.
  • You want to seek innocent spouse relief, and you believe you qualify for it because your spouse was solely responsible for the debt and you had no reason to know about it.
  • The 10-year statute of limitations from the assessment day has passed, making it impossible for the IRS to seize the debt.

This is no an exhaustive list of defenses and the right option depends on your unique situation. The hearing does not always yield a solution, but if yo disagree with the results, you have the option to appeal to a higher court. 

However, if you still cannot find a resolution, the IRS will move forward and seize your assets.

What to Do If the IRS Has Seized Your Assets

Ultimately, you want to learn how to stop the IRS from seizing property, but if you are at the point where they have already seized your assets, you may still have some options.

The IRS may agree to release if you can demonstrate:

  • You paid what you owed.
  • The collection period ended prior to the seizure being issued.
  • Releasing your assets will help you pay your taxes.
  • You are in an on-time installment agreement, and the terms of that agreement do not allow for seizures.
  • The seizure creates economic hardship, meaning the IRS’s actions make basic living expenses impossible.
  • The value of the seized property is more than what you owed.
  • The IRS seized property that didn't belong to you.
  • The seizure was of exempt assets.

Contesting a levy that's in progress or has already happened can be very challenging. You may need to meet strict deadlines and/or procedures. Get a licensed tax resolution professional to help you.

Reclaiming Your Property Going to Auction

If your home, vehicle, or other hard assets are being sold at auction or have already been sold at auction, you may have time to take action to reclaim those assets. You can reclaim your property if you pay the full tax debt owed and all related expenses before the auction ends.

Once the property is sold, you may still redeem your assets if you act within 180 days by reimbursing the winning bidder for their purchase price. You will also have to compensate them 20% annual interest.

What Not to Do If the IRS Plans to Seize Your Assets

You want to know how to stop the IRS from seizing property, and in reality, when the IRS is trying to take the home that’s been in your family for years, you may feel desperate to take action. However, there are some things you should not do.

  • Do not transfer your assets to someone else as a way to hide them or otherwise make them inaccessible to the IRS. 
  • Do not want to lie about the value of your assets since the IRS can easily figure out what you own and how much it's worth. But that said, you may want to talk with a tax professional before giving the IRS this information. Don't lie, but don't overshare. 
  • Don't necessarily answer questions without guidance – if you're at this stage, you may want to have a tax professional talk with the IRS on your behalf.
  • Don’t assume the IRS will not take action – the agency has a lot of power to collect unpaid taxes, and they will use it. 

Hire a Tax Attorney to Gain Answers and Peace of Mind

When you are at this point in the debt collection process, it’s normal to be afraid of what comes next. Remember, the IRS does not want to take your belongings, but must seek payment. With the help of a tax professional, you may be able to work around the limitations you are facing, create a plan, and protect your assets from legal seizure.

The sooner you contact a tax pro, the more options you have. Use TaxCure to find a tax professional today.

FAQs

What assets can the IRS not seize?

Some assets are protected. That means the IRS cannot seize them to pay tax debt. Under the Internal Revenue Code § 6334, the following assets are exempt:

  • Personal items, such as your clothing and furniture up to a value of $7,700
  • Tools of the trade, or equipment you need to use to operate your business, up to a value of $3,860
  • Unemployment benefits
  • Workers’ compensation benefits
  • Child support payments
  • Your primary residence, unless approved by a federal judge

How do I stop the IRS from seizing my property?

The short answer is to act now to set up a payment plan or offer in compromise. Do this if you cannot pay your debt in full. If that is not an option for you, seek the help of a tax attorney as a primary step. Unless your assets are exempt, the IRS will continue its actions to seize assets.

Can a trust protect assets from the IRS?

In some situations, an irrevocable trust can shield assets from the IRS. This type of trust can protect a wide range of assets because the trust “owns” them. However, a trust is only a viable solution if you set it up prior to the tax issues – and even then, it's not always guaranteed; you need to work with a specialist when making these types of financial moves. If you try to set it up as the IRS is seizing your assets, they will see that as fraudulent activity.

Does an installment agreement prevent seizure?

If you set up an installment agreement with the IRS and make payments, this halts all seizure activity. However, if you fall behind and do not make payments, the process can start again.

How far back can the IRS go to seize assets?

The IRS generally has a 10-year statute of limitations. That is 10 years from the tax assessment to collecting on the debt through the seizure of assets. If they fail to do so within that timeframe, they cannot seize the assets. However, various situations can pause that 10-year limitation, adding more time to the process, such as submitting an offer in compromise, filing bankruptcy, or living outside the US.