Can the IRS Take My Home for Unpaid Taxes?
The IRS can claim an interest in your home for unpaid taxes, but taking it involves a lengthy legal process with built-in taxpayer rights.
The prospect of the Internal Revenue Service (IRS) taking your home for unpaid taxes is a significant source of stress. While the IRS has the legal authority to seize and sell a taxpayer’s residence, this action is not taken lightly. It is a measure of last resort, used only when a taxpayer is non-responsive or uncooperative over an extended period. The process is governed by strict legal procedures that provide homeowners with multiple notices and opportunities to resolve their tax debt.
The Federal Tax Lien
The IRS collection process begins with a lien, not a seizure. A federal tax lien is a legal claim the government places on your property when you fail to pay a tax debt. This lien arises automatically after the IRS assesses your liability, sends a Notice and Demand for Payment, and you do not pay the debt in time. The lien attaches to all your assets, including your home, but it is not the act of taking the property and remains until the debt is paid, becomes unenforceable by statute of limitations, or is resolved.
Initially, the lien is a private matter. However, the IRS can make it public by filing a Notice of Federal Tax Lien in local records, which alerts creditors that the government has a claim against your property. This public notice can make it difficult to sell your home, refinance a mortgage, or obtain credit, as the government’s claim generally takes priority.
The IRS Seizure Process
A seizure, also known as a levy, is different from a lien as it is the actual act of taking property to satisfy a tax debt. The IRS cannot move from a lien to a seizure without following legally mandated steps. This process is even more stringent when the property is a person’s primary home.
Before the IRS can seize any property, it must provide the taxpayer with a “Final Notice of Intent to Levy and Notice of Your Right to a Hearing.” This notice must be sent at least 30 days before any seizure can occur. It can be delivered in person, left at your home or business, or sent by mail, giving you a 30-day window to appeal or arrange payment.
The seizure of a principal residence has special protections, as the IRS cannot seize your main home to satisfy a tax liability of $5,000 or less. For larger debts, the agency must obtain a court order to force a sale. This can be done through an administrative levy process or by filing a lawsuit to foreclose on the federal tax lien. In either case, the agency must present its case in court, and you will receive notice and have an opportunity to object.
The Sale of a Seized Home
Once the IRS has legally seized a home through a court order, the agency will sell the property to satisfy the tax liability. Before any sale, the IRS is required to provide the homeowner with a Notice of Sale and must also publicly advertise the sale.
The IRS establishes a minimum bid price for the property based on its value and shares this amount with the taxpayer before the sale. The sale is conducted as a public auction, and the proceeds first cover the costs of the seizure and sale. The remaining funds are then applied to the tax debt, and if any surplus exists, it is returned to the former homeowner.
Even after the sale, the taxpayer has an opportunity to reclaim the property. Federal law provides a “Right of Redemption,” which gives the original homeowner 180 days from the date of the sale to buy back their home. To do so, they must pay the person who purchased it at auction the full purchase price, plus interest.
Preventing the Seizure of Your Home
The most effective way to prevent a home seizure is to proactively address your tax debt with the IRS. When you receive a “Final Notice of Intent to Levy,” you have 30 days to request a Collection Due Process (CDP) hearing. This hearing allows you to discuss your case with the IRS Office of Appeals and propose alternatives to a seizure.
During a CDP hearing or direct negotiation, you can request several resolution methods. An Installment Agreement (IA) allows you to make manageable monthly payments until the debt is paid. An Offer in Compromise (OIC) may allow you to resolve your tax liability for less than the full amount if you can demonstrate that paying would create an economic hardship.
Another option for those experiencing severe financial hardship is to have an account placed in Currently Not Collectible (CNC) status. While in CNC status, the IRS temporarily pauses collection efforts, although interest and penalties continue to accrue.