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IRS and State Seizure of Assets

IRS and State Seizure of Assets

If you are unable to pay your taxes, the best course of action is for you to immediately contact a tax attorney and set up a payment plan to pay the debt in full. If you fail to make an effort to resolve your tax debt, the IRS can and will involuntarily collect the taxes by seizing your personal and/or business assets. The IRS can seize any asset that you own, including your income, personal property, even your Social Security, retirement or pension.

How Assets are Seized:

Before the IRS seizes your assets as a last resort, they will first file a tax lien on your property, which stakes claim and gives the IRS priority over other creditors.

The IRS can impose a wage garnishment, which deducts part of your earnings to pay your taxes automatically. They can also place a bank levy on existing savings, checking and offshore accounts in order to settle your debt.

In addition, when you file a future tax return and are due a federal or state tax refund, the IRS has the right to take those funds to satisfy your debt as well.

How you can protect yourself:

You may be able to negotiate a tax debt reduction with the IRS and avoid seizure of assets, but it’s best to employ the services of an experienced IRS tax attorney to assist with this process. Strategic Tax Lawyers, LLP is led by a former IRS tax lawyer who worked on the side of the government for over 8 years. He knows the legal system inside and out and can help get you the lowest settlement possible.

Read more about our experienced team of IRS lawyers, or contact us now for a free consultation.

IRS Procedural Guidelines

5.17.3.4.5 (01-07-2011)
Seizure of a Residence/Principal Residence

  1. IRC § 6334(a)(13)(A) exempts from levy any real property of the taxpayer used as a residence by any individual (except for real property that is rented), if the levy amount does not exceed $5,000.
  2. In addition, IRC § 6334(e)(1) requires a court order before administrative seizure of certain principal residences owned by the taxpayer when seizure is otherwise permissible. These include the principal residence of:
    • the taxpayer
    • the taxpayer’s spouse
    • the taxpayer’s former spouse
    • the taxpayer’s minor child
  3. Although not legally required, written approval by the Area Director is required administratively before seizure of any property used by any person as a principal residence.
  4. After the required approval is obtained, a suit recommendation package should be prepared for Area Counsel. The procedures for preparing a seizure recommendation package for Area Director approval and for preparing the suit recommendation package are set forth in IRM 5.10.2.18.
  5. IRC § 6334(e)(1) provides that there will be no levy on a principal residence unless approved by a judge or magistrate (in writing). At this hearing, the Service will be required to demonstrate that (1) the requirements of any applicable law or administrative procedures relevant to the levy have been met, (2) the liability is owed, and (3) no reasonable alternative for the collection of the taxpayer's debt exists.

5.17.3.4.6  (01-07-2011)
Seizure of Business Assets

  1. IRC § 6334(a)(13)(B)(ii) and IRC § 6334(e)(2) require the written approval of the Area Director or Assistant Area Director before seizure of certain business assets. "Business assets" is defined as any tangible personal property or real property (except for rental property) used in the trade or business of an individual taxpayer.
  2. This approval is not required if there has been a jeopardy determination.
  3. Approval may only be given after determining that the taxpayer’s other assets subject to collection are insufficient to pay the amount due, together with the expenses of the proceeding.
  4. With respect to the seizure of state permits for the harvest of fish or wildlife in the trade or business of an individual taxpayer, the term "other assets" includes future income that may be derived by the taxpayer from the commercial sale of fish or wildlife under the permit.
  5. This approval requirement is only for assets used in the trade or business of an individual taxpayer. Thus, this approval is not required before seizure of the business assets of a corporation or partnership.
  6. This approval requirement is only for tangible business assets. Tangible property is, in general, property that is physically seized for the purpose of being sold, such as inventory and vehicles. In general, intangible property represents property rights with no separate physical existence that are reached by levy, such as certificates of stock or copyrights. Any questions as to whether a certain business asset is tangible property and therefore, whether Area Director approval is required prior to seizure, should be referred to Area Counsel.

5.17.3.4.7  (01-07-2011)
Property Exempt from Levy

  1. IRC § 6334(a) exempts certain property from levy. In addition to residences/principal residences and certain business assets which may be exempt as discussed above, the following property is exempt from levy:
    • wearing apparel and school books necessary for the taxpayer or members of his family
    • fuel, provisions, furniture, and personal effects in the taxpayer’s household, up to a specified, inflation-adjusted amount
    • books and tools of the trade, necessary for the trade, business or profession of the taxpayer, up to a specified, inflation-adjusted amount
    • unemployment benefits

Note:

The unemployment benefit exemption has been strictly construed and does not encompass retirement and survivor's benefits or disability insurance payments under the Social Security Act. Kane v. Burlington Savings Bank, 320 F.2d 545 (2d Cir), cert. denied, 375 U.S. 912 (1963).

    • undelivered mail
    • certain annuity or pension payments: payments under the Railroad Retirement Act, benefits under the Railroad Unemployment Insurance Act, special pension payments received by Army, Navy, Air Force, and Coast Guard Medal of Honor recipients, and annuities based on retired or retainer pay under chapter 73 of Title 10 of the United States Code

Note:

Although as a matter of policy, the Service has placed some administrative restrictions on levying on retirement income and retirement assets, those listed in IRC § 6334(a) are the only ones exempt from levy as a matter of law.

    • workmen’s compensation (including amounts payable with respect to dependents)
    • so much of the salary, wages, or other income as is necessary to comply with a judgment of a court requiring the taxpayer to contribute to the support of his/her minor children, but only if the judgment was entered before the date of the levy
    • an amount determined under IRC § 6334(d) as a minimum exempt amount of wages, salary, or other income
    • certain service-connected disability payments
    • certain public assistance payments
    • any amount payable under the Job Training Partnership Act

Note:

With the exception of undelivered mail, unemployment benefits, workers compensation, public assistance payments, Job Training Partnership Act payments, specified annuity and pension payments, exempted categories are limited in terms of value, necessity or both

Need an IRS attorney to help prevent the seizure of your personal or business assets? Contact Strategic Tax Lawyers to discuss your rights. (800) NOW-IRS-LEVY or (800)669-4775.

The IRS has an overview and complete library on civil seizure and forfeiture.  What are the limits (or options) that the IRS has in seizing your belongings?  Find out at eTaxes.com.  Do a Google search on your state to find out what the laws might be that apply to you.