Will the IRS take your assets or force you to liquidate assets in order to satisfy your IRS back tax liability?
The IRS can, with a few limited exemptions, seize your assets to satisfy your IRS back taxes. However, if you have competent legal representation, this should not happen to you unless every other collection alternative resolution has been exhausted or unless you actually desire the IRS to seize a particular asset (for example, if the IRS levies a 401(k) account, the taxpayer does not pay the tax penalty associated with early liquidation of a 401(k) account).
There are a number of factors that come into play when determining the likelihood that the IRS will seize your assets, including, without limitation, the amount of back taxes owed, your ability to pay the taxes back, your previous compliance with tax laws, your level of cooperation with IRS Collections, your relationship with the collection officer, etc.
Before the IRS can seize your assets, the IRS must issue a Final Notice of Intent to Levy to you at least 30 days prior to any seizure. There are some exceptions to this requirement (i.e. collection of tax is in jeopardy, levy is served on a State to collect a Federal tax liability from a State refund, a disqualified employment tax levy, or a Federal Contractor levy is served), but these only apply in a limited number of situations and, for the purpose of this article, will not be discussed. In the vast majority of situations, the Final Notice of Intent to Levy is required prior to levying or seizing assets. The Final Notice comes with an appeal right; however, if you do not exercise this right, the IRS may, after 30 days, be able to seize your assets to pay the IRS back taxes.
When the IRS seizes your assets, it takes physical custody of the asset. The IRS collection action varies depending on the nature of the asset. If the IRS is seizing bank accounts or other liquid accounts, the IRS freezes the accounts by sending the holder of your account a Notice of Levy. It is also important to note that the account is frozen for 21 days, during which time you could argue to have the levy released, and your assets relinquished back to you. If the IRS is seizing personal property, they may hire a moving company to assist them in removing the assets from your possession. If the IRS is seizing real property (real estate), the IRS follows the procedures set forth in Sections 6335 and 6336 of the IRC.
The IRS has broad power to seize business assets if your business owes back taxes. After thirty days elapses from the issuance of the Final Notice of Intent to Levy, the IRS can levy (seize) bank accounts and accounts receivable. The IRS has to get a court order or magistrate’s order to seize assets located within the business (unless the business consents), but can seize any assets that are on public land without the court order. The IRS can ultimately padlock your business if the tax liability remains unpaid and no resolution is reached.
One tactic that I have seen some IRS Revenue Officers (tax collectors) utilize is as follows. On occasion, they will make aggressive demands and threaten to seize property if their demands are not met immediately, even though they have not gone through the prerequisite procedures to enforce their threat. What’s more, they don’t tell you that they haven’t gone through the prerequisite procedures.
In this type of situation, the immediacy of their threat is really little more than a bluff intended to bully taxpayers into making a big and unwanted sacrifice. Should you call their bluff? The answer is absolutely not, unless you are being represented by an experienced tax resolution professional who has the capability of determining that the IRS has yet to follow its requisite procedures, and that the threat is, therefore, hollow—at least for the time being.
If the Revenue Officer’s demands are not met and the Revenue Officer (RO) has yet to follow the required procedures, sooner or later, the RO will likely satisfy the prerequisite procedures for enforcement, and carry through with his or her threat. However, during this timeframe, it may be possible to move the case into appeals or to negotiate some kind of alternate arrangement that will save the taxpayer from making the unwanted sacrifice. Thus, it can really pay off to have a professional who knows the IRS collection procedures on your side.
The good news is that there are a variety of different methods that can be utilized to stop the seizure of your assets. Your best bet is to seek advice from a qualified tax professional in the event that you owe back taxes and are unable to promptly full pay the tax debt.