What to Know About Tax Seizures and How to Stop Them
This guide provides a clear overview of the tax seizure process, detailing the government's requirements and the taxpayer's options for resolution.
A tax seizure is the legal process where a government taxing authority takes possession of a taxpayer’s property to cover an unpaid tax debt. This enforcement measure is a final step in the collection process, used only after other attempts to collect the debt have failed. The Internal Revenue Service (IRS) prefers to work with taxpayers to resolve debts through other means, so a seizure indicates that previous notices and opportunities to settle the account have been exhausted.
Conditions Leading to a Tax Seizure
Before the IRS can seize property, it must meet three legal requirements. First, the agency must assess the tax and send a “Notice and Demand for Payment,” which informs the taxpayer of the amount owed. Second, the taxpayer must have neglected or refused to pay the assessed tax after receiving the initial notice and subsequent reminders.
The final condition is the issuance of 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, providing a last opportunity to resolve the debt or appeal the collection. A tax lien is a legal claim against property as security for a debt, while a levy is the actual act of taking the property.
Types of Property Subject to Seizure
The IRS has broad authority to seize various assets, including funds in bank accounts and the garnishment of wages or other income. Social Security benefits and retirement income are also subject to levy, though some limitations may apply. The agency can take physical property, but seizing a taxpayer’s primary residence is an uncommon measure that requires court approval.
Personal property is also vulnerable to seizure. This category encompasses a wide range of valuable items, such as vehicles, boats, jewelry, and art.
Property Exempt from Seizure
Federal law provides specific exemptions that protect certain property from IRS seizure. A portion of a taxpayer’s wages is exempt from levy to ensure they can cover basic living expenses, with the amount determined by filing status and number of dependents.
Certain government benefits and personal belongings are also shielded from seizure, and the IRS is legally prohibited from seizing undelivered mail. Other exempt property includes:
- Unemployment benefits
- Workers’ compensation
- Court-ordered child support payments
- Certain public assistance and pension benefits
- Necessary school books and certain clothing
- A limited value of furniture, household goods, and tools used in a trade or business
The Official Seizure and Sale Process
Once legal prerequisites are met, the IRS delivers a seizure notice, such as Form 668-B, “Levy,” to the property owner. This document officially informs the owner that the IRS has taken legal possession of the specified asset. After the property is seized, the IRS must provide a public “Notice of Sale,” which announces the upcoming auction of the asset.
Before the sale, the IRS determines a minimum bid price. This price is based on the property’s value, reduced by any liens that are senior to the federal tax lien.
The sale is then held, and the property is sold to the highest bidder. The proceeds from the sale first cover the costs of the seizure and sale process itself. Any remaining money is then used to pay the tax liability, and if there is any surplus after the debt and costs are fully paid, the excess funds are returned to the original property owner.
Methods to Secure a Release of Seized Property
A taxpayer has several options to secure the release of their property after it has been seized but before it is sold. The most direct method is to pay the full tax debt, including all accrued penalties and interest. This action satisfies the liability and compels the IRS to return the property.
Negotiating a payment solution is another path. If the taxpayer enters into an Installment Agreement or has an Offer in Compromise (OIC) accepted by the agency before the sale date, the IRS may agree to release the seized property.
A taxpayer can also seek a release by demonstrating that the seizure is causing a significant economic hardship. If it can be proven that the loss of the property would leave the taxpayer unable to meet basic living expenses, the IRS may determine that continuing with the seizure is inequitable. Posting a bond with the IRS that guarantees payment of the full tax liability will also secure the release of the property.