When Can the IRS Seize Your Assets?

While the Internal Revenue Service (IRS) has several tools that it can use to enforce taxpayer compliance, one of its most effective tools is its power to seize, or levy, taxpayers’ assets. For high-income and high-net-worth taxpayers who are behind (or allegedly behind) on their federal tax obligations, facing an IRS seizure is a very real concern. Learn more from Texas tax attorney Lawrence Brown.

Understanding When the IRS Can Seize Taxpayers’ Assets

Broadly, the IRS has the power to seize taxpayers’ assets when they fall behind on their federal tax obligations. As the IRS itself explains, “[a]ny property or right to property that belongs to the taxpayer or on which there is a Federal tax lien can be levied, unless the [Internal Revenue Code] exempts the property from levy.” Thus, generally speaking, if you owe money to the IRS, you are at risk of facing an IRS levy.

As a practical matter, however, the IRS only pursues asset seizures in certain circumstances. The amount of liability at issue and the value of the taxpayer’s assets that the IRS can reach are key factors—meaning that the IRS most often pursues levies in cases involving high-income and high-net-worth taxpayer noncompliance. As the IRS also explains, it will generally only pursue a levy after:

• The IRS has sent a Notice and Demand for Payment;
• The taxpayer has “neglected or refused” to pay the amount owed;
• The IRS has sent a Final Notice of Intent to Levy and Notice of Your Right to a Hearing; and,
• The IRS has notified the taxpayer that it may contact third parties in its attempts to collect.

The issuance of a Final Notice of Intent to Levy and Notice of Your Right to a Hearing (a “Final Notice”) is a key step in the process. This is the formal notification that the IRS intends to seize a taxpayer’s assets to enforce the taxpayer’s federal tax obligations. Generally, the IRS must issue a Final Notice at least 30 days before it initiates a seizure; and, once it issues a Final Notice, the taxpayer has the right to request a Collection Due Process (CDP) hearing to contest the seizure and fight to prevent the IRS from moving forward.

What Assets Can the IRS Seize?

The IRS has the authority to seize various types of assets in order to collect taxpayers’ debts. In fact, the general rule is that a taxpayer’s assets are subject to seizure. Section 6334 of the Internal Revenue Code (IRC) identifies assets that are exempt from seizure, and Section 6343 of the IRC provides taxpayers with the right to seek relief from certain asset seizures in cases of financial hardship. Various other legal and constitutional issues can come into play as well. But, otherwise, the IRS can generally seize assets, including (but not limited to):

• Real estate
• All types of personal property
• Funds in bank accounts and brokerage accounts
• Retirement assets
• Accounts receivable
• Rental income
• Unpaid tax refunds, wages, and Social Security benefits

Importantly, while the IRS must issue a Final Notice of Intent to Levy and Notice of Your Right to a Hearing in most cases, it is not required to issue a Final Notice if collection is “in jeopardy.”  This means that if the IRS has reason to believe a taxpayer may attempt to move assets overseas or shield them from seizure through other means, the IRS may be able to initiate a seizure immediately.

How Can Taxpayers Fight an IRS Asset Seizure?

High-income and high-net-worth taxpayers who are at risk of having their assets seized by the IRS may have various options for avoiding seizure. As with other high-stakes federal tax matters, the specific options that are available depend on the circumstances at hand. With this in mind, some potential options include:

File an Appeal

One option may be to file an appeal. If the IRS has incorrectly calculated your tax liability (or if it cannot prove that it has accurately calculated your tax liability), you may be able to obtain relief from collection through the IRS’s Independent Office of Appeals or in the U.S. Tax Court.

Request a CDP Hearing

Once you receive a Final Notice from the IRS, you have the right to request a CDP hearing as noted above. As the IRS explains, “[a] CDP hearing is an opportunity to discuss alternatives to enforced collection and permits you to dispute the amount you owe if you have not had a prior opportunity to do so.”

Settle with the IRS

If you do not have grounds to dispute your tax liability, your best option could be to settle with the IRS. Not only can settling with the IRS prevent an asset seizure, but it can also provide finality that eliminates the risk of facing criminal prosecution based on the underlying tax issue(s) at hand.

Challenge the Seizure in Court

Along with challenging the IRS’ determination of liability, taxpayers may also be able to challenge the execution of IRS levies on other grounds. If, for example, an impending seizure would violate a taxpayer’s constitutional rights, the taxpayer may be able to seek relief in federal district court.

How Can Taxpayers Get Their Assets Back from the IRS?

Let’s say it is too late for you to avoid an asset seizure. Is it possible to get your assets back from the IRS after a tax levy?

While individual circumstances vary, generally speaking, the answer is “Yes.” The IRS will hold taxpayers’ assets for a period of time, and there are both administrative and judicial procedures for seeking to have a levy released. With that said, time can be of the essence—and there are various other practical, legal, and strategic considerations involved—so it is important to discuss your options with an experienced Texas tax attorney promptly.

Request a Call with Texas Tax Attorney Lawrence Brown

If you are facing a substantial asset seizure by the IRS, we may be able to help protect your assets, and we encourage you to contact us promptly for more information. To request a call with Texas tax attorney Lawrence Brown, call 888-870-0025 or contact us confidentially online now.