It is not at all uncommon for people who owe money to the IRS to lose sleep at night worrying about all kinds of horrific things that could happen as a result of their unpaid taxes. Aside from oxygen, food and shelter are as fundamental as it gets in terms of basic human needs. So, it’s no surprise that tax debtors often stress and fret about whether they will be able to put food on their table and keep a roof over their heads.
No matter how voracious of an appetite a Revenue Officer (tax collector) might have, they aren’t going to storm into your home and raid your fridge. In other words, if you can figure out a way to stock your fridge and prevent your kid’s friends from devouring everything, you aren’t going to starve.
But what about keeping a roof over your head? Can the IRS actually force you to sell your home due to unpaid taxes? The short answer is “not really, but sort of.” I know that isn’t a very useful answer, so I will elaborate on what I mean.
Can the IRS Seize My Home?
Before jumping into whether the IRS can force you to sell your home, I’ll touch briefly on a closely related topic: whether the IRS can seize your home. They actually can seize a taxpayer’s principal residence, but this happens so rarely and under such limited circumstances that, unless you are determined not to cooperate and have a lot of equity, it really isn’t worth losing a minute’s worth of sleep.
In a nutshell, in order to seize your primary residence, you are first going to have ample opportunities to resolve the tax debt voluntarily. Then, if you and the IRS can’t agree on any way of resolving the debt, the IRS is going to have to convince a judge or magistrate that there is “no reasonable alternative for the collection of the taxpayer’s debt.” Also, if you don’t have enough equity in your home to make seizing it worth the IRS’s time and effort, they won’t take it. Period.
Can the IRS Make Me Sell My House For UNPAID Taxes?
A far more interesting question is whether the IRS can force you to sell your primary residence. In my two-decades plus career representing taxpayers in collections with the IRS, I’ve never experienced a time when the IRS effectively told me that my client must sell their home. There are also five other attorneys in my office who do nothing but represent taxpayers who are in collections. None of them have ever had the IRS tell them that their client must sell their home. Even if the IRS did demand that a tax debtor sell their home, I can’t think of any way how the IRS could truly force them to do so.
HOWEVER (and this is a big HOWEVER), the IRS most definitely can force some tax debtors into a situation where they really have no choice but to sell their home. I’ll explain how this can happen, whether you might be at risk, and what to do if you are at risk of being “forced” to sell your home.
First of all, long before there is any kind of risk of being “forced” into selling your home, you are going to be given ample opportunity to reach an agreement with the IRS to resolve your tax debt. The good news is that there are a number of different ways to resolve a tax debt short of just paying it off, and some taxpayers qualify for a really sweet deal.
The five other attorneys in my firm—all of whom handle tax debt cases exclusively–and I have succeeded in settling many tax liabilities for a tiny fraction of the full amount. We’ve negotiated very affordable monthly payments on behalf of our clients many, many times. We’ve succeeded in getting the IRS to back off and leave our clients alone without our clients having to pay a thing many times.
So, the first thing you ought to do if you wind up with a tax bill that you can’t pay is get with an experienced tax resolution professional and determine what kind of deal you might qualify for. Your tax problem might not be nearly as bad as you think, and, if you tackle it early on, you’ll very likely never lose a wink of sleep worrying about losing your home.
If you address your tax problem early on, and especially if you have a good tax resolution professional advocating on your behalf, the chances of being forced to sell your home are very, very low. However, though rare, there is a certain set of circumstances where it can be challenging to avoid being “forced” to sell your home. These circumstances almost always involve having relatively high income, high housing expenses, and a relatively high tax debt.
I’m going to illustrate by using an example of a 3-person household with monthly gross income of $15,000, and $6,000 in monthly housing and utility expense. Keep in mind that the challenges presented in this example can exist on a lower scale with lower income and vice versa.
The example homeowners, “Jim and Jane Jones,” have nothing they could liquidate or borrow against to pay down or pay off the IRS. After covering all of their monthly expenses, the Joneses have $1,000 left over. So, they are able to pay the IRS $1,000 towards their back taxes each month.
Now, if Jim and Jane owed the IRS $25,000, the IRS would almost certainly agree to accept $1,000/mo and the liability would be paid in a little over 2 years. The problem, however, is that Jim and Jane owe the IRS $250,000, and $1,000/mo will hardly make a dent in the debt when you factor in penalties and interest.
With that said, there actually are cases where the IRS will agree to $1,000/mo on a tax liability of $250k. But, before they agree to such terms, they are first going to require that the tax debtors submit extensive financial documentation, and the financials are going to have to demonstrate that the tax debtors truly can’t adjust their lifestyle such that they could afford to pay more than $1,000 each month. Unless you qualify for a Streamlined Installment Agreement (and, with a tax debt of $250k, Jim and Jane most definitely do not), the IRS is going to want the monthly payment on an installment agreement to be whatever your income minus allowable expenses turns out to be.
For the sake of simplicity, let’s say that all of Jim’s and Jane’s expenses are “allowable” except for housing and utilities. The IRS uses a chart that states what it will allow for housing and utilities based on the county in which the residence is located as well as the number of people in the household.
Let’s say that Jim’s and Jane’s 3-person home is located in Topeka, Kansas (Shawnee County). As I write, the allowable monthly housing and utility expense for a household of 3 in Shawnee County is $1,580 (these allowable figures do get adjusted periodically). Since their actual housing and utility expense is $6,000, the IRS will “disallow” $4,420 ($6,000 – $1,580) of the Joneses’ housing and utility expense.
Whereas all other expenses in this example were allowable and Jim and Jane already have $1,000 available after paying all actual expenses, the IRS is going to say that the Joneses have the ability to pay $5,420/mo ($1,000 available + the disallowed $4,420), and, absent some clever negotiating, the IRS is not going to approve monthly payments less than $5,420.
This is obviously going to be an enormous challenge for this Jim and Jane. They are absolutely free to keep their home provided that they figure out a way to shell out $5,420 to the IRS each month (or figure out a way to get a lower IRS payment which I’ll get to later). If they get rid of their car payments in favor of a couple clunkers, eat nothing but top ramen, gets mom and pop to give them money each month, never take a vacation, etc., maybe, just maybe, they can afford to cover their $6,000 housing and utility expense and their $5,420 monthly payment to the IRS. If not, they may have no choice but to sell their home and find alternative, less expensive housing so that they can afford to pay the IRS. Thus, while the IRS didn’t force them to sell their home per se, the IRS may have left them with no viable alternative.
It’s very important to understand that in real life, tax debtors may have a number of different expenses that are “disallowed” (e.g. too much for car payment, private school tuition, credit card payments, church tithing, spending too much on food/clothing/miscellaneous, etc.). In my example, only the housing and utility expense was over the allowable limit. But even if all of a tax debtor’s housing and utility expenses are allowable, a similar problem can occur if tax debtors have a significant amount of other expenses that are “disallowed.”
The bottom line is that, although the IRS will not likely tell you to stop spending your money as you see fit, they will tell you that you have to come up with a certain dollar amount each month (or face enforcement). It’s up to you to figure out how you will come up with it.
If you find yourself in a situation that’s similar to that of Jim and Jane, don’t despair…yet. Although you absolutely have a challenging case, it may still be possible to convince the IRS to deviate from their “rigid” income minus allowable expenses formula—especially if you get a very good tax resolution pro to advocate on your behalf.
An experienced and highly skilled tax resolution pro may also be able to help you make some adjustments in your expenses that will be a lot less painful than selling your house while also leveraging those adjustments to convince the IRS to deviate from their formula (or to better “fit” within their formula).
Though the best tax resolution pro in the world probably wouldn’t be able to get the IRS to accept $1,000/mo from the Joneses, it is quite possible that he or she could get the IRS to meet somewhere between the $1,000/mo that the Joneses can comfortably afford and the $5,420 that the IRS is going to want. The closer the pro can get to the $1,000 side of this spectrum, the easier it will be for the Joneses to make ends meet while keeping their home.
If you’re in a situation anywhere close to that described in my example, I strongly encourage you to reach out to an attorney who has a lot of experience resolving tax debts. A good one will listen carefully to your needs (e.g. “I want to keep my house”), be honest about the fact that you have a challenging case and that you may have to make some concessions, collect and analyze all pertinent facts, and devise a plan that will maximize the chance of meeting your needs—in this case, that need being keeping your house.
If you think you might need professional help and don’t know who to call, pick up the phone and call us. We have caring and knowledgeable professionals on staff who would be glad to evaluate your situation for you at no charge and determine if and how we can help.