Taxation & Estate Planning

Will the IRS take my house? Seize my car?

By howardlevy

One of the most common concerns about owing the IRS back taxes is that they will show up one day and take your house or car from you. 

No matter what the IRS may tell you or what you may have heard, it is very unlikely the IRS will levy on your house, car or furniture.  The assets you may be most concerned about the IRS taking are the one’s the IRS is least likely to take from you.  This is important to know in negotiating with the IRS.

Last year, the IRS made only 600 seizures of houses, cars and other personal property.  In case you are wondering, 600 seizures across the country is a very low number (compare to the 2 million levies the IRS sends on bank accounts and wages – now that is a concern worthy of attention).

The reason?  If you do not have any “equity” in your property the IRS will not levy it.

Internal Revenue Manual 5.10.1.2 states that seizures are prohibited  “where the taxpayer has insufficient equity in the property.”  Internal Revenue Code 6331(f) prevents the IRS from making an “uneconomical levy” – meaning there must be an economic recovery to the IRS to do it.  

Examples:

Your car?  If your car is worth $7,500, and you owe $7,500 on it, you are protected. 

Your house?  Take the value, subtract your mortgage, and reduce it further by the costs of sale.  There has to be a fairly substantial amount left afterwards for the IRS to be interested under the equity rules.  

Even if there is equity, a seizure is still generally something the IRS does not desire to do.  You will need to force them – meaning a lack of cooperation after repeated attempts by the IRS to work it out.  Most seizures need managerial approval before being sent to an IRS property liquidation specialist.  Some, like a personal residence, require outside court approval (See IRC 6334(e((1)). 

In most cases, the IRS is prohibited by tax law and their own internal guidelines from making a seizure when there is no recovery.  Because of that, the IRS focuses the most on levying wages and bank accounts.  Knowing the difference allows you to put your energy into protecting what really matters to the IRS.

Full post as published by IRS and the Law on January 07, 2010 (boomark / email).