An IRS seizure is the legal process by which the Internal Revenue Service takes a taxpayer's assets to satisfy an unpaid federal tax liability. Essentially, it allows the Service to legally take your assets, and the money generated from these assets will be used to pay off your past-due federal tax liability.
Understanding IRS Seizures
The IRS primarily uses seizures as a last resort to collect delinquent taxes when a taxpayer has failed to respond to repeated notices or make arrangements to pay their outstanding debt. While the term "seizure" often brings to mind the physical taking of property, the most frequent type of seizure employed by the IRS is actually a levy.
Seizure vs. Levy: A Key Distinction
It's important to understand the nuance between a general "seizure" and a "levy":
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Levy: This is the most common form of IRS seizure. A levy allows the IRS to legally seize financial assets that are held by a third party. This typically includes:
- Funds in bank accounts
- Wages or salaries from an employer
- Retirement income or pensions
- Accounts receivable owed to a business
- Dividends, rental income, or commissions
A levy is generally continuous until the debt is paid or the levy is released (e.g., a wage garnishment).
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Physical Seizure: This refers to the actual taking of tangible property by the IRS, such as real estate, vehicles, or other personal property. This is a much less frequent occurrence and is typically pursued only after all other collection attempts, including levies on financial assets, have failed. Once seized, the property is usually sold at a public auction, and the proceeds are used to satisfy the tax debt.
| Feature | Levy (Most Frequent Type of Seizure) | Physical Seizure (Tangible Property) |
|---|---|---|
| Target Assets | Financial assets (bank accounts, wages, pensions) | Real estate, vehicles, boats, business equipment |
| Method | Direct claim on funds or income held by third party | Physical taking of property; subsequent sale |
| Frequency | Very common collection tool | Less common; usually a last resort for the IRS |
| Notification | Typically, 30-day notice is required | Formal notice required; often involves legal process |
Assets Subject to Seizure
The IRS has broad authority to seize various types of assets to satisfy a tax debt. Common examples include:
- Bank Accounts: Funds held in checking, savings, or other deposit accounts.
- Wages and Salaries: A portion of a taxpayer's earnings can be garnished.
- Retirement Accounts: Depending on the type and circumstances, funds in IRAs, 401(k)s, or other retirement plans may be subject to levy.
- Real Estate: Homes, land, and other real property.
- Vehicles: Cars, trucks, motorcycles, boats, and airplanes.
- Business Assets: Equipment, inventory, accounts receivable, or even the business itself.
The IRS Collection Process Leading to Seizure
Before an IRS seizure or levy can occur, the Service must follow specific procedures to notify the taxpayer and allow them opportunities to resolve their tax debt. The process generally involves:
- Demand for Payment: The IRS sends a series of bills and notices (e.g., CP14, LT11) after taxes are assessed and remain unpaid.
- Notice of Intent to Levy/Seize: The IRS typically issues a final notice, such as a Notice of Intent to Levy (e.g., Letter 1058), at least 30 days before initiating a levy or seizure. This notice informs the taxpayer of their intent and their rights.
- Right to Appeal: Taxpayers usually have the right to request a Collection Due Process (CDP) hearing with the IRS Office of Appeals within 30 days of receiving the final notice. This provides an opportunity to dispute the tax liability or offer collection alternatives.
- Actual Seizure or Levy: If the taxpayer does not respond, or no resolution is reached, the IRS can proceed with the levy or seizure of assets.
You can learn more about the IRS collection process on the official IRS website: IRS Collection Process.
What to Do If Facing an IRS Seizure
If you receive a notice from the IRS indicating an intent to levy or seize your assets, it is crucial to act immediately. Ignoring these notices will likely result in the IRS taking action. Here are steps you can take:
- Do Not Ignore IRS Notices: Promptly open and respond to all correspondence from the IRS.
- Understand Your Rights: Familiarize yourself with the Taxpayer Bill of Rights, which outlines protections for taxpayers during collection actions.
- Contact the IRS: Reach out to the IRS directly to discuss your situation and explore payment options.
- Explore Payment Options: The IRS offers several avenues to help taxpayers resolve their debts, which may include:
- Installment Agreement: Making monthly payments over a period.
- Offer in Compromise (OIC): Settling your tax debt for a lower amount than what you owe, based on your ability to pay.
- Currently Not Collectible (CNC) Status: If you cannot afford to pay any of your tax debt due to financial hardship.
- Seek Professional Assistance: Consult with a qualified tax professional, such as a Certified Public Accountant (CPA), Enrolled Agent (EA), or tax attorney. They can help you understand your options, negotiate with the IRS, and protect your rights.
- Appeal the Decision: If you disagree with the IRS's decision or the proposed collection action, you may have the right to appeal to the IRS Office of Appeals.
