You’ve received an alarming notice from the IRS, and the words “seizure,” “levy,” and “assets jump out at you. While the IRS does have the legal authority to seize assets, they do have to go through the proper process to do so—and when they do, not every asset is equally at risk. The IRS generally begins by seizing money, rather than property.
Learn more about what the IRS can seize, what they typically go after first, and how you can protect yourself and your assets from seizure. To get help now, contact us at the W Tax Group today.
Key Takeaways
- The IRS may seize assets via levy after sending taxpayers a final notice.
- Assets that may be levied include wages, bank accounts, Social Security benefits, real estate, and vehicles.
- It is rare for the IRS to seize a taxpayer’s primary residence or vehicle.
- There are payment options available that can help you avoid a levy.
What is IRS Seizure?
Under Internal Revenue Code 6331, the IRS has the legal authority to seize assets when a taxpayer does not respond to a final notice and demand from the IRS. This is different from a lien, which is a legal claim to your property. When the IRS files a federal tax lien, they are staking a claim to your property because of your tax debt, but they are not actually taking possession of it. When they enact a levy, they are taking possession of your assets.
While the IRS does have the right to seize almost anything you own, they generally start with your funds on hand or income sources. They don’t typically jump right to your real estate, vehicles, or businesses.
What the IRS Can Seize
Per the Internal Revenue Code, the IRS can seize a wide range of assets, including:
- Wages and salary
- Bank accounts
- Retirement accounts (although exemptions and limits apply)
- Real estate
- Vehicles
- Some Social Security benefits
- Some assets held in trusts or LLCs
- Business income and customer payments
- Other assets with value, including rental income, accounts receivables, and IRS and state tax refunds
While it seems like the IRS can seize just about anything you own, there are limits. Some of the things that the IRS cannot seize include:
- Supplemental Security Income (SSI payments)
- Social Security survivor benefits paid to a child
- Lump sum death benefits
- Certain personal items, such as clothing, school books, and items needed for work
- A portion of your wages, depending on your filing status and family size
What the IRS is Likely to Seize First
Although the law does give the IRS the right to seize whichever non-exempt assets they choose to satisfy your tax debt, they tend to seize certain assets first and then go back for additional assets if needed. They may start with tax refunds, as these are easy to intercept on a state or federal level and apply directly to your tax debt.
They are also likely to seize your bank accounts and wages before moving on to other assets. Seizing assets takes time and money—bank accounts and wages are the easiest to apply to your tax debt. The IRS can simply apply whatever they seize from your bank account to your tax debt, and once a garnishment is enacted, they can continue intercepting your wages until you have paid off what you owe.
Compare that to the work involved in legally seizing a taxpayer’s rental property. The IRS needs to go through the proper court process, take legal ownership, legally evict any tenants who may be living there, get the property assessed, sell it, and then apply whatever they get to your tax debt. Similarly, seizing a vehicle involves finding it, taking physical ownership, checking the value, selling it, and then applying any proceeds to your debt. They have to put much more work into seizing and selling non-cash assets.
If you are self-employed, be prepared for the IRS to seize your business revenue, too. This is essentially the same as seizing a traditionally employed taxpayer’s wages.
Seizures That Are Rare—But Possible
Note that the IRS does not have to stop after seizing the assets that are easiest to grab. Ideally, that first round of seizures will be enough to cover your tax debt, and you won’t have to deal with the IRS further. But if you still have outstanding tax debt, they may move on to seize less common assets.
It’s fairly rare for the IRS to seize business equipment and cars, but they will do so if the debt is large and the taxpayer has been resistant or uncooperative with setting up other payment arrangements. Retirement accounts are also not at the top of the IRS’s list, but they will take them if a taxpayer has significant tax debt and does not have any other way to pay.
Finally, consider your primary residence—the asset that most taxpayers are most afraid of losing. The IRS very rarely seizes a taxpayer’s primary residence, as it takes a long time to go through the court approval process and it looks very bad for the IRS to leave a taxpayer homeless. This weakens their image with the public and makes it harder for them to secure taxpayer cooperation long-term, as people are afraid of losing their homes. Because of this, the IRS only takes a taxpayer’s home under very specific circumstances.
| Asset Type | Likelihood of Seizure | Notes |
|---|---|---|
| Bank accounts | High | Usually the first asset to be seized, as the IRS can freeze the funds and empty it out in one swoop |
| Wages | High | Wage garnishment continues until tax debt is paid off |
| Tax refunds | High | Can be intercepted automatically |
| Business income | High/medium | More likely if you are self-employed and business income is your only source of revenue |
| Social Security benefits | Less common | Not as common as other assets but very possible |
| 401(k) and other retirement funds | Less common | Less strict seizure rules than other creditors |
| Vehicles | Rare | Often only used if other assets cannot be seized |
| Primary residence | Very rare | Requires court approval and is generally a last resort |
How You’ll Know Asset Seizure is Coming
While asset seizure is stressful, it is also typically not a surprise. The IRS generally goes through a long notification process to give taxpayers the chance to resolve their tax debt voluntarily. Early notices include CP14, CP501, and CP503. From there, they move on to sending CP504 and LT11 or LT1058. LT11 and LT1058 are sent via certified mail, so they certify the IRS’s legal requirement to notify taxpayers of their intent to levy.
While you shouldn’t ignore any notices from the IRS, LT11 and LT1058 are definitely the most urgent. Once the IRS sends either one of these letters, they can begin levying your assets 30 days after the date on the letter–unless you appeal or pay the debt first.
No matter where you are in the collection notice process, you should take each notice seriously and take steps to address your tax debt. The earlier you respond, the more options you have available to you—and the less likely it is that the IRS will move forward with a levy while you try to negotiate a solution.
How to Legally Protect Your Assets
Asset seizure is not inevitable when you owe the IRS money. The IRS prefers voluntary payment whenever possible, and they typically only move ahead with levies when there are no other options available to them. If you’re afraid of losing your assets to the IRS, consider these alternatives:
- Collection Due Process hearing: With your final notice, the IRS will include information on your right to a hearing. During a Collection Due Process hearing, you can request other payment options and try to negotiate an agreement with the IRS.
- Installment agreement: If you set up and abide by your installment agreement, the IRS will hold off on levies and other aggressive collection actions. The new Simple Payment Plan allows you to make payments up until your Collection Statute Expiration Date, resulting in more affordable monthly payments.
- Offer in compromise: Taxpayers who are unable to pay their taxes in full, either over time or in one lump sum, may qualify for an offer in compromise. The IRS calculates how much of an offer they’ll accept based on your disposable income and assets.
- Currently not collectible status: Currently not collectible status is a good option for taxpayers whose financial situation is severe enough that they cannot pay anything toward their tax debt. Note that this is typically a temporary arrangement unless you remain in this status until the Collection Statute Expiration Date.
- Appeals: If the IRS pursued a levy prematurely or incorrectly, you may appeal their decision.
When the IRS May Go After Property
While many of the IRS’s collection notices reference levies, the fact is that few cases actually result in levies. This is because they would prefer that taxpayers set up voluntary payment arrangements instead—hence the multiple collection notices that come before a levy. But if a taxpayer owes a substantial amount of money, ignores notices, has a long history of non-compliance, or refuses to cooperate with the IRS, the IRS may have no option but to levy their assets.
Even when a levy is the only option available to the IRS, they prefer to stick to bank accounts, wage garnishments, and tax refunds whenever possible. They typically only move on to homes and vehicles if there is no other way to collect. In particular, seizing a taxpayer’s home requires approval of both IRS leadership and the court.
Can Trusts or LLCs Shield Assets?
Some taxpayers use trusts or LLCs to attempt to protect their assets from seizure. However, it’s important to recognize that the IRS has been issuing levies for a long time, and they know all the tricks taxpayers use to try to protect their assets. When a taxpayers creates a trust or shell company to shield their assets from the IRS, the IRS will go to court to recover those assets, prove that the trust or LLC was created solely to prevent asset seizure, and take ownership anyway.
Protecting your assets from the IRS cannot happen by last-minute moves that the IRS has seen a thousand times. To protect your assets from the IRS long-term, you must plan ahead, recognize that they are not going to stop trying to collect what you owe, and work with a tax professional who can help you meet your goals.
How W Tax Group Can Help
At W Tax Group, we understand the fear and uncertainty that come with IRS notices threatening liens and levies. That’s why we pride ourselves on helping taxpayers across the United States. No matter what your tax situation is, we can help you:
- Understand where you are in the tax collection process
- Explain different payment arrangements that may be available to you based on your assets, income, and tax debt
- Communicate with the IRS on your behalf
- Negotiate with the IRS to come to a beneficial arrangement
- Handle application processes for different relief options
- Set you up for long-term compliance
If you’re facing a potential levy and you’re ready to get back on track with the IRS, the W Tax Group should be your next phone call. Get the guidance and support you need without any judgment. Give us a call at 877-500-4930 or schedule your tax relief consultation online.
Sources:
https://www.law.cornell.edu/uscode/text/26/6331
https://www.irs.gov/businesses/small-businesses-self-employed/what-is-a-levy
https://www.irs.gov/businesses/small-businesses-self-employed/levy
https://www.irs.gov/irm/part5/irm_05-010-003
https://www.irs.gov/irm/part5/irm_05-010-001
https://www.irs.gov/help/irs-levy-programs-toolkit
https://www.irs.gov/pub/irs-pdf/p1494.pdf
https://www.irs.gov/taxtopics/tc201
https://www.irs.gov/businesses/small-businesses-self-employed/what-is-a-levy
