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When the IRS Seizes Property

January 22, 2016  |   Tax Advice,Tax Tips   |   Tags: , , , ,  

If a taxpayer owes back taxes and did not make satisfactory efforts to resolve them, the IRS can ultimately seize the individual’s property. The government can seize the property, bank account, wages or a taxpayer’s assets to recover unpaid taxes. Typically, seizing physical property is a last resort method.

IRS Collection Action

irs tax lavyWhen the IRS seizes property, they will sell the taxpayer’s interest in the property and apply the proceeds to back taxes. Before the sale, the IRS calculates the minimum bid price. They provide a copy of the calculation to the taxpayer. The taxpayer has the opportunity to resolve the back taxes to stop the sale. Alternatively, the taxpayer may challenge the IRS’ estimation of the fair market value of the property.

Before the sale of property, the IRS sends a notice of the sale to the taxpayer in question. The agency also announces the pending sale to the public through newspapers or flyers. The IRS generally waits for at least 10 days before actually selling the property.

The proceeds from the sale are used to pay the tax debt, and also the cost of the seizure and the sale. Any remaining balance is sent to the taxpayer as a refund.

What Taxpayers Can Do

To request a seizure release and resolve the tax debt, the taxpayer needs to contact the IRS or use a legal representative, such as a tax attorney or an enrolled agent. The only case where the IRS releases a seizure without a resolution is when the action is causing an economic hardship. If the taxpayer is not able to meet necessary living expenses due to the seizure, the IRS may be compelled to cease their efforts.

If the IRS does not release the seizure even after knowing the hardship, the taxpayer can appeal the IRS’ decision. An appeal can be made before or after the seizure. Even if the seizure proceeds have reached the IRS, the taxpayer can file a claim to have them returned. For complete information on appeal rights, review IRS Publication 1660, Collection Appeal Rights.

Releasing the Seizure

The IRS releases a seizure if any of the following are met:

  • The full back tax amount is paid with penalties and interest
  • The collection period called the statute of limitations ended before the seizure was issued
  • If the seizure creates an economic hardship

The IRS also releases a seizure if:

  • The IRS believes that releasing the seizure will help the taxpayer to pay the back taxes, or
  • The value of the property is more than the back taxes owed, and releasing the seizure will not affect the IRS’ ability to collect the back taxes

After the release of a levy, the taxpayer is required to resolve the back taxes. They can do so by either paying the full tax debt amount, or achieve a resolution through a payment plan such as Installment Agreement or Offer in Compromise. In there is ultimately a failure to reach a resolution, the IRS may reissue the seizure.