Taxation & Estate Planning

IRS property seizures and auctions for June and July, 2008

By howardlevy

The IRS has announced its public auctions of seized taxpayer property for June and July, 2008.  Property being sold includes designer clothing and jewelry in New Jersey, vacant commercial real estate in Cleveland, Ohio and, yes, even the frozen horse semen of three time National Champion Park Stallion MHR Nobility in Fort Collins, Colorado.  

In 2007, the IRS made 676 seizures nationwide. In days gone by (1992), the IRS would make up to 11,000 seizures per year. The lowest level was in 2000, with only 74. Seizure activity was reduced significantly after 1998 by the IRS Restructuring and Reform Act, which gave taxpayer’s more rights to dispute IRS collection activity.  

The circumstances of these current cases is probably severe.  Most seizure cases involve uncooperative taxpayers, who have been given many opportunities to solve their problem before drastic measures are taken.  There also has to be equity in the property that will result in the IRS receiving money from the auction (See IRC Section 6334(f)).  

The vacant commercial property in Cleveland, for example, most likely had substantial equity in it, maybe even was paid off, and secured by IRS liens.  The business operated there is obviously closed.  In most cases, the owner of the property would have been given multiple opportunities to liquidate the property voluntarily, or negotiate to keep the property but pay the equity in another way. The owner could have even proven a hardship to payment, although this is difficult.  

There are many remedies to avoid this type of action, including offers in compromise, installment agreements and bankruptcy (which stops IRS seizures and can eliminate the taxes).  Taxpayers have the right to dispute any collection action administratively before an independent IRS Appeals Officer and in U.S. Tax Court or U.S. District Court.

As to the designer clothing, Section 6334 of the Internal Revenue Code lists all property exempt from IRS collections.  These exemptions include clothing that is necessary for the taxpayer and his or her family. Again, it is likely that something the taxpayer did caused the IRS to go after designer clothing.  Gucci and Louis Vuitton may not be necessary, but it is somewhat extreme for a seizure as the IRS Liquidation Specialist valued the property at $3,000, not much of a recovery after the costs (and efforts) of sale.  Skilled negotiations should not result in these types of seizures.  

More on IRS collections and seizures from two articles I wrote for the Cincinnati Bar Report here and here.

Full post as published by IRS and the Law on June 14, 2008 (boomark / email).