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No one enjoys handing over hard-earned income to the IRS in the form of taxes. However, failing to pay your tax liability has the potential to result in much worse than penalties and interest. We have previously discussed the potential for criminal tax penalties, which you can read about by clicking here, but what we are now referring to is the IRS’s power to seize assets.
The IRS has incredibly broad and far-reaching powers. It is authorized by the government to enforce the tax code. One of the most powerful tools granted by the Internal Revenue Code is the ability to seize taxpayer assets in order to satisfy tax liabilities.
If you have significant outstanding tax obligations, the IRS can seize your home, your business, you bank accounts, your wages, and other assets to satisfy your liabilities. That being said, the IRS will not put up a “For Sale” sign in your front your if you underpay your taxes by a few dollars or are a little late in filing your tax returns.
The IRS utilizes progressively serious methods to try to collect your tax debt before seizing your assets.
It will begin by informing you of your tax debt and giving you the opportunity to pay it. If you fail to pay what you owe, your debt will increase due to penalties and interest. If you can’t pay what you owe, you should pay as much as you can and work with the IRS to resolve the remaining balance. There are many ways you can negotiate with the IRS in order to make payment viable, such as offers-in-compromise and installment agreements. The key is to be proactive; so don’t ignore IRS billing notices. If you fail to take action, the situation can spiral out of control
If the IRS is unable to collect or communicate with you regarding a reasonable plan for repaying your debt, it will proceed to file a federal tax lien against you. The IRS files a public document, the Notice of Federal Tax Lien, to alert creditors that the government has a legal right to your property. You have the right to appeal if the IRS advises you of the intent to file a Notice of Federal Tax Lien. When filed, the Notice of Federal Tax Lien is a public document that alerts other creditors that the IRS is asserting a secured claim against your assets. This means that when you sell your assets, the IRS will receive the proceeds from the sale to the extent of your tax liability before you or any other creditors receive such proceeds.
Once other methods of collection have been exhausted, the IRS use its power to seize assets by use of a levy. A levy is a legal seizure of your property to satisfy a tax debt. Levies are different from liens. A lien is a legal claim against your property to secure payment of your tax debt, while a levy actually takes the property to satisfy the tax debt.
An IRS levy permits the legal seizure of your property to satisfy a tax debt. It can garnish wages, take money in your bank or other financial account, seize and sell your vehicle, real estate and other personal property.
The IRS can also levy on your bank accounts. An IRS bank levy attaches only to funds in your account at the time your bank processes the levy. Any future deposits that you make are not subject to the levy once it has been processed. For example, if you have $200 in your account at the time of levy, your bank will deduct that. If you make a $1,000 deposit the next day, that money is yours and is not subject to the levy – you keep it. The levy was extinguished when the $200 was deducted. An IRS bank levy is not continuous on your account. After the levy is processed, you can continue to use the account and pay your bills. The IRS would have to send a brand new levy to get money out of your account again. This is certainly possible, but another bank levy is unlikely to happen quickly, although caution should be exercised. Your account is clearly active in the IRS collection queue, and you may also be at risk for a levy on wages.
You should also know that an IRS bank levy requires your bank to hold the levied funds for 20 days before sending it to the IRS. This gives you a window of time to contact the IRS, negotiate a release of the levy and have the funds restored to your account. If you have been hit with a bank account levy, the IRS is trying to get your attention. The IRS resorts to enforcement when it cannot get account resolution voluntarily.
If the IRS levies (seizes) your wages, it sends a notice to your employer, and your employer is required to send part of your wages to the IRS each pay period until you make other arrangements to pay your overdue taxes, the amount of overdue taxes you owe is paid, or the levy is released. Part of your wages may be exempt from the levy and the exempt amount will be paid to you. The exempt amount is based on the standard deduction and the number of personal exemptions you are allowed.
While the IRS has broad powers to seize your assets when you owe them money, your case does not ever have to escalate to this point. With the help of a skilled tax attorney like those at Weisberg Kainen Mark PL, you should always be able to negotiate a payment plan that avoids the IRS seizing your assets.
If you are facing tax collection issues with the IRS, please give us a call right away to learn how we can help.
Weisberg Kainen Mark, PL
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