Seizure: IRS Collections Explained

A seizure is the most severe collection action that the IRS can take. It involves the IRS taking possession of the taxpayer’s property, which can include real estate, personal property, and financial assets. The property is then sold, and the proceeds are used to satisfy the tax debt.

Seizures are a last resort for the IRS. They are only used when other collection methods have failed, and when the taxpayer has not responded to multiple attempts by the IRS to collect the debt.

The seizure process begins when the IRS issues a Final Notice of Intent to Levy and Notice of Your Right to a Hearing. This notice informs the taxpayer that the IRS intends to seize their property, and it provides the taxpayer with another opportunity to request a hearing.

If the taxpayer does not respond to the final notice or request a hearing, the IRS can proceed with the seizure. The IRS will then identify the property to be seized and arrange for its sale.

Not all property can be seized by the IRS. Certain types of property are exempt from seizure, including certain personal effects, tools of the taxpayer’s trade, and a certain amount of equity in the taxpayer’s primary residence.

It’s important for taxpayers to be aware of these exemptions, as they can potentially protect some of their property from seizure. However, the rules regarding exemptions are complex and subject to certain limitations, so taxpayers should seek professional advice if they are facing a potential seizure.

Once a seizure has taken place, the IRS will sell the seized property at a public auction. The proceeds from the sale are used to satisfy the tax debt. If the proceeds exceed the amount of the tax debt, the excess is returned to the taxpayer.

After the sale, the IRS will provide the taxpayer with a report of the sale and a final accounting of the tax debt. If the sale proceeds do not fully satisfy the tax debt, the IRS may take further collection action to recover the remaining amount.

Under certain circumstances, a taxpayer may be able to redeem their seized property. This involves the taxpayer paying the full amount of the tax debt, plus any interest and penalties, before the property is sold. If the taxpayer redeems the property, the seizure is reversed and the property is returned to the taxpayer.

Redemption is not always possible, and it requires the taxpayer to come up with a significant amount of money in a short period of time. However, it can be a viable option for some taxpayers, particularly those who have access to funds or who can borrow the necessary amount.

A taxpayer can challenge a seizure by filing a claim with the IRS. The claim must be filed within two years of the seizure, and it must state the grounds for the claim. If the IRS denies the claim, the taxpayer can sue the IRS for the return of the property.

Challenging a seizure can be a complex and time-consuming process, and it requires a thorough understanding of the law and the facts of the case. Therefore, taxpayers who wish to challenge a seizure should seek professional advice.

Preventing a seizure is always preferable to dealing with one after it has occurred. There are several steps that taxpayers can take to prevent a seizure, including paying their taxes on time, responding promptly to IRS notices, and seeking professional advice if they are unable to pay their taxes.

Additionally, taxpayers can enter into a payment plan with the IRS, which allows them to pay their tax debt over time. In most cases, the IRS will not seize a taxpayer’s property if they are making regular payments under a payment plan.

The IRS offers several types of payment plans, including short-term payment plans (payment in 120 days or less) and long-term payment plans (payment in more than 120 days). The type of payment plan that a taxpayer can enter into depends on the amount of their tax debt and their ability to pay.

Entering into a payment plan can help a taxpayer avoid a seizure, but it does require the taxpayer to make regular payments. If the taxpayer fails to make these payments, the IRS can terminate the payment plan and proceed with collection action.

An Offer in Compromise (OIC) is another option for taxpayers who are unable to pay their tax debt. An OIC is an agreement between a taxpayer and the IRS that settles the taxpayer’s tax debt for less than the full amount owed.

An OIC can be a good option for taxpayers who are facing financial hardship, but it is not available to all taxpayers. The IRS considers a taxpayer’s income, expenses, and asset equity when deciding whether to accept an OIC.

Seizure is a serious and complex aspect of the IRS collections process. It involves the IRS taking possession of a taxpayer’s property to satisfy a tax debt, and it can have significant consequences. Request a consultation with former IRS revenue agent turned tax attorney and CPA, Whitney Sorrell, to discuss your situation so we can help resolve your tax problems.