What the IRS Can and Cannot Take: Your Complete Guide to IRS Seizure Power
Receiving an IRS notice about potential asset seizure can be frightening, especially if it’s unexpected. However, while the IRS does have significant collection powers and the right to take significant assets, they must also follow certain legal procedures.
Knowledge is power. Understanding what the IRS can and can’t seize is the first step in the process. You can then decide how to move forward and what action to take. This guide will walk you through the IRS seizure process, help you identify which assets are most at risk, and show you how to protect yourself by knowing your rights.
Key Takeaways
- The IRS follows a specific notification process before seizing any assets, giving you multiple opportunities to resolve tax debt.
- Wages and bank accounts are the primary targets due to their accessibility and straightforward seizure process.
- Your home and some retirement accounts have significant legal protections, which makes seizure rare and difficult.
- You have powerful appeal rights, including Collection Due Process hearings, that can stop or delay seizures.
- Proactive communication with the IRS dramatically reduces the likelihood of asset seizure.
Red Flags: When Seizure Risk Increases
It’s important to note that certain situations make asset seizure more likely, including:
- Large debts: When your tax debt exceeds $25,000.
- Non-compliance: Pattern of non-compliance, no communication, or ignored notices.
- Asset hiding: There’s evidence of asset hiding or dissipation.
- Substantial assets: Business with a combination of substantial assets and large debt.
- Broken agreements: Previous collection agreements that were not fulfilled.
The Road to Seizure: Understanding the IRS Collection Timeline
How long does the seizure process take? The IRS won’t seize your assets overnight. Before the escalation process begins, you’ll get multiple warning signs and opportunities for resolution. Let’s break down the phases from start to finish:
Phase 1: Initial Contact
First up, the IRS will contact you regarding the process. Having outstanding tax debts typically triggers the collection process. You will receive a Notice and Demand for Payment letting you know how much you owe.
Should you miss this notice or fail to respond, you’ll then get follow-up notices. These notices will explain how to pay or set up payment arrangements.
Should you miss this notice or fail to respond, you’ll then get follow-up notices. These notices will explain how to pay or set up payment arrangements.
Phase 2: Escalation Warnings
When you’ve had multiple collection notices—each with increasing urgency—the next phase is Final Notice of Intent to Levy (For example, LT11 or Letter 1058). Note that this is your last warning before seizure action begins. If you want to avoid it entirely, you should take action now – you only have 30 days to request a Collection Due Process (CDP) hearing.
Phase 3: Collection Action
The final phase is collection, which means that the IRS can start seizing assets. This will happen when you haven’t responded to any of the notices along the way. However, your Collection Appeal Program (CAP) rights are still available at this point to stop the process.
Keep in mind that this process typically takes several months. That gives you ample time to take action if you don’t ignore the notices. Plus, even when collection actions have started, you still have rights. Later in this guide, we’ll cover how you can take action to protect your assets.
What the IRS Takes First: The Low-Hanging Fruit
If collection action has begun, you may be wondering what the IRS can seize first. The IRS prioritizes any assets that are easy to access and convert straight into cash. With that in mind, you’ll want to know which of your assets are at risk of being seized. Let’s break it down:
High Risk: Primary Targets
First up, let’s take a look at the primary targets for the IRS. These are the assets that can be seized first, should formal action begin:
Wage Garnishment
The IRS can enact a wage garnishment, meaning that fees are deducted directly from your paycheck. This will continue until your debt is paid in full. You should be aware that the IRS can take substantial portions of your income this way.
Bank Account Levies
Bank account levies mean an immediate freeze and seizure of all available funds in your account. This can affect both your checking and savings accounts. This action can happen without additional warning, and so often catches people off guard.
Tax Refunds
If you are receiving any federal or state refunds, the IRS can intercept them and apply them to your debt. This is often the first action the IRS will take, since it allows them immediate access to the funds.
While these are the most common seizure targets you should know about, they aren’t the only ones. Should the IRS not be able to recover the owed funds through these means, they may look to secondary targets, which are often reserved for the most significant debts.
Moderate Risk: Secondary Targets
If the IRS cannot get your tax debt covered by seizing the above assets, they’ll move forward with less common types of asset seizure. In certain circumstances, the government may choose to seize the following assets.
Personal Property
Personal property can include everything from vehicles and boats to jewelry and collectables. This type of seizure is often more complex due to the valuation and item sale requirements. What’s more, it takes longer for the IRS to get its money because they have to physically seize the assets, hold them for a certain amount of time, advertise the sale, and then auction off the asset. This action tends to be reserved for larger debts.
Business Assets
Your business assets include any equipment, inventory, or accounts receivable. If your company has substantial assets, you will be at a higher risk of this action, which can severely impact the everyday operations of your business. That’s why it’s critical to stay compliant with your business tax obligations.
What the IRS Rarely Takes: Your Protected Assets
Now that we’ve covered the assets that may be at risk, let’s talk about the ones that are less likely to be seized. Certain assets have legal protections or practical barriers that make it highly unlikely that the IRS will attempt to seize them. Here’s a breakdown:
Strongly Protected Assets
Concerned about losing your home or retirement fund? The risk of this is lower than you might expect. The following assets are strongly protected against IRS seizure.
Your Primary Residence
While the IRS can technically seize your primary residence, this is extremely rare. That’s because it requires an extensive approval process before it can go forward. The IRS also carefully considers the ramifications of the process – the agency isn’t aiming to make people homeless.
Retirement Accounts
Accounts, such as your 401(k), Traditional IRA, or Roth IRAs, are also at risk of seizure, but the IRS typically only resorts to taking these accounts in rare situations – for example, if you’ve repeatedly and flagrantly ignored paying your taxes. The agency can only take funds you’re entitled to withdraw – for example, if you’re not eligible for in-service withdrawals, they can’t seize that account.
Essential Work Tools
Essential work tools cover any equipment necessary for your profession — the things you would not be able to do your job without. These are protected up to reasonable value limits. This protection is designed to make sure you can continue earning. Note there is a lot of nuance here, and sometimes, you have to convince the IRS that you need a certain asset for work – a tax attorney can be critical for that part of the process.
Legally Exempt Assets
Aside from the strongly protected assets, there are specific assets that are legally protected. That means that the IRS cannot seize these, so they are safe. These assets include:
Basic Living Necessities
Your basic living necessities are everything that you need for everyday survival. These include your essential clothing, household items, and minimal value personal effects.
Protected Government Benefits
Additionally, the IRS cannot seize any protected government benefits. These include SSI benefits, unemployment compensation, workers’ compensation, court-mandated child support payments, and most public assistance benefits. The agency can take a significant portion of your Social Security payments, however.
Your Rights and Defense Strategies
If the IRS has begun collection, remember that you’re not powerless in this process. Federal law provides several important protections, which we will discuss below:
Collection Due Process (CDP) Hearing
This is triggered by the Final Notice of Intent to Levy, and you have 30 days from the notice date to request a hearing. The CDP hearing is an independent review of your case. You can explain why the IRS shouldn’t seize your assets and suggest setting up payment arrangements.
Equivalent Hearing
You have up to a year from the levy notice to request an equivalent hearing. This option also gives you a chance to talk about paying options, but by this point, the asset seizure may have already started.
Collection Appeals Program
The CAP is yet another appeal option for taxpayers, and you can use it before or after an asset seizure takes place. There are very specific deadlines and processes, so for the best results, consider contacting an attorney before you appeal.
Immediate Actions You Can Take
To protect your assets, it’s vital that you take immediate action. Doing so will help your defense and show the IRS that you are cooperating.
Communicate Proactively
The worst thing you can do is ignore the IRS. Proactive communication shows good faith, which can often prevent escalation to seizure actions. Contact the IRS directly via the phone number on your notice, respond to all correspondence within the stated deadlines, and keep records of every conversation, including dates, times, and the name of the IRS representative.
Explore Relief Options
The IRS offers several programs to help taxpayers resolve their debt. These include the following:
- Installment Agreement: You can make manageable monthly payments over time. This prevents collection actions entirely (as long as you set it up before the IRS starts the seizure).
- Offer in Compromise: This option means you may settle your tax debt for significantly less than the full amount. It’s based on your ability to pay and your financial circumstances.
- Currently Not Collectible status: The status temporarily suspends all collection activities if paying would create financial hardship. It gives you breathing room to improve your financial situation, without losing your assets.
Know Your Rights
Federal law recognizes that aggressive collection can push taxpayers directly into poverty. Economic hardship protections may stop seizure actions if collection would prevent you from meeting basic living expenses such as housing, food, and medical care.
Additionally, the IRS has to consider your family size, age, health conditions, and local cost of living. A qualified tax attorney can help document your hardship circumstances to present the strongest case for asset protection.
Taking Action: Your Next Steps
If you’re facing a potential IRS seizure, it’s important not to ignore the problem. Below, we break down the steps you can take:
Immediate Actions: Within 48 Hours
- Read all IRS notices: Note down important dates and response deadlines.
- Gather documentation: Collect any important financial documents relating to your income, expenses, and asset values.
- Contact the IRS: Don’t let fear prevent communication. Call the IRS using the phone number on your notice. Or have an attorney contact them on your behalf.
Short-term Actions: Within 30 Days
- Request a CDP hearing: If you received a Final Notice, request the hearing now.
- Explore payment options: Look into your choices based on your financial situation.
- Contact a tax attorney: Working with a professional can help you navigate the process.
Nashville Tax Solutions specializes in protecting taxpayers’ rights and negotiating favorable resolutions with the IRS. Contact us today for a confidential consultation and take the first step toward resolving your tax situation.
Final word
The IRS’s seizure powers, while significant, have to operate within defined legal boundaries. By understanding their process, priorities, and your rights, you can take control of the situation.
The IRS is often willing to work with taxpayers who communicate honestly and make good faith efforts to resolve their tax debt. Nashville Tax Solutions is your trusted partner in resolving tax debt issues. Email our team today to get the legal support and advice you need.
FAQs
I received an LT11 notice. What should I do first?
You have 30 days to request a Collection Due Process hearing. Contact the IRS right away to discuss payment options and request a hearing to protect your rights.
Can the IRS take money directly from my paycheck?
Yes, wage garnishment is one of the IRS’s primary collection tools. However, they must leave you with minimum amounts for basic living expenses, and they must notify you at least 30 days before starting the garnishment.
Are my bank accounts safe from IRS levy?
Bank accounts are high-priority targets for IRS levies. The IRS will contact your bank about the levy, and then, the bank must hold the funds for 21 days before sending them to the IRS. That gives you a window to resolve the situation.
How can I stop the IRS from seizing my property?
You have options, including requesting a Collection Due Process hearing, setting up a payment plan, demonstrating financial hardship, or negotiating an Offer in Compromise. At Nashville Tax Solutions, we can help you reach the best outcome.
The IRS is threatening to take my car. What can I do?
Vehicle seizure tends to be less common as it’s quite complex – and generally, the IRS doesn’t take anyone’s only vehicle. However, if you’re worried, contact the IRS immediately to discuss alternatives like a payment plan. For example, if your car is essential for work, emphasize this as it may qualify for protection.
Do I have any rights when the IRS tries to seize my property?
Yes, you have significant rights. These include Collection Due Process (CDP) hearings, the right to propose alternative collection methods, hardship protections, and the right to legal representation.