You and/or your business have accrued a tax liability and are now receiving increasingly threatening letters from the IRS that indicate that they are going to seize your assets. Many questions arise. Can the IRS actually do this? Will they seize my corporate assets and shut my business down? Will they seize my residence? These are some of the most common concerns of my clients, and the purpose of this article is to address when and how the IRS can actually move forward with their threats of asset seizure.
Before any collection action can commence, the IRS must first go through the standard collection procedures by issuing a series of collection letters. See this article for further guidance on the collection process. With a few very limited exceptions, the IRS may not forcibly seize assets until after it has issued a Final Notice of Intent to Levy.
It is worth noting that seizing assets is typically one of the last measures the IRS takes in their attempt to resolve a liability. The IRS usually will not seize assets from taxpayers who will pay or cannot pay the outstanding liability unless the taxpayer continues to violate the tax laws or simply refuses to cooperate. The IRS has determined that taxpayers who will pay or cannot pay meet the following criteria:
- They do not agree with the assessment and are working with the Service to properly adjust their account.
- They will full pay their liability within a reasonable time frame.
- They require a reasonable period of time to sell an asset or secure a loan.
- They are in current filing compliance and submit a processable offer in compromise
- They have no ability to make payments and have no distrainable assets.
- They request and qualify for an installment agreement.
Taxpayers who simply will not pay meet the following criteria:
- They have the ability to remain current and/or resolve their delinquent taxes through an alternative collection method (e.g. installment agreement, offer in compromise) but will not do so.
- They cannot remain current and/or resolve their liability, but have assets in excess of exempt amounts that will yield net proceeds and are unwilling or unable to borrow against or liquidate these assets.
- They are pyramiding liabilities (meaning they are continuing to accrue new tax liabilities).
- They use unsupported tax arguments and continue to resist the requirements to file and pay.
- They will not cooperate with the Internal Revenue Service.
- They will not comply with the results of the Service’s financial analysis or will not enter into an installment agreement or offer in compromise.
- They are wage earners who have not paid their tax liability and will not adjust their withholding to prevent future delinquencies.
- They are self-employed, have not paid their tax liability and will not make estimated payments to prevent future delinquencies.
After the IRS concludes that you fit in the will not pay category and before seizure action can commence, the IRS must first verify the liability, thoroughly consider alternative collection methods (e.g. installment agreements, offer in compromise, posting a bond, levy), analyze available information to determine whether the fair market value of the assets to be seized exceeds the amount of expenses anticipated with the seizure, and verify that the equity is sufficient to yield net proceeds from the sale. The IRS is not going to spend time and resources seizing assets that will not result in proceeds when sold.
Once the IRS determines that seizure action is appropriate, the IRS must then attempt to personally contact the taxpayer either by a phone call or field call prior to seizure in order to discuss what is necessary to avoid seizure action. Again, the only time that the IRS does not have to follow these procedures is if they feel that collection of the liability is in jeopardy.
Since seizure is typically the last resort of the IRS, they must complete and document a risk analysis where they compare the advantages and disadvantages of alternative collection action. The IRS can only proceed with seizing assets if they conclude that any alternative collection action would put the government at greater risk of failure to collect the liability.
The IRS must then do their due diligence to determine the fair market value of the assets, outstanding loan amounts on the assets, equity in the assets, and lien priority. The IRS will only seize an asset if doing so will facilitate resolution of the liability. This is only the case when the IRS has lien priority and the fair market value exceeds any encumbrances along with the costs of seizure and subsequent sale. These costs include towing fees, storage costs, transportation costs, locksmith fees, advertising costs, auctioneer services, appraisal fees, title searching expenses, and other miscellaneous expenses. The IRS will not proceed with seizure action if the costs associated with seizure and sale of the asset is greater than the fair market value of the assets.
As discussed, there are many criteria that must be satisfied before seizure occurs and ample opportunities to prevent a seizure from occurring. Consequently, provided that the taxpayer truly seeks to resolve the tax liability on a voluntary basis, a competent tax resolution professional can usually prevent assets from being seized by developing a comprehensive resolution strategy that is beneficial for both the taxpayer and the IRS.