One of the biggest sources of anxiety for many who have fallen behind with their taxes is whether the IRS or state taxing authority will swoop in, zap their bank accounts, garnish their wages, and seize their home, investment accounts, or other assets. While this nightmare scenario can and does become a reality for some taxpayers, it can almost always be avoided by taking the proper steps.
For many, this anxiety stems primarily from the unknown—
people don’t know how the IRS collection apparatus works
and they are frightened by the unknown.
If that sounds like you, I’ve got good news. I’m going to explain in simple terms what you need to do to protect yourself as well as what the IRS must do before you become a target for levies, garnishments, and seizures. Simply understanding their system should help alleviate any anxiety you may be feeling. So, before you lose another wink of sleep, read on.
By law, the IRS can, with a few limited exemptions, seize your assets, garnish your wages, or levy your bank accounts to satisfy your IRS back taxes. However, and this is a big however, there is a process the IRS must follow before they start snatching up your stuff. During this process, you will have ample opportunity to resolve your tax debt voluntarily.
The Pre-Seizure Process
The first step in the process is an assessment of a tax balance due. This is typically created when a taxpayer files a tax return without full payment of the balance due. Assessments of taxes due can also result from audit findings or when the IRS files a Substitute for Return on behalf of a taxpayer who failed to file for a prolonged period of time.
After a tax liability is assessed, the IRS will issue a Notice and Demand for payment. Although the IRS can file a Notice of Federal Tax Lien after this Notice has been issued, they have yet to reach the stage where they can legally seize assets.
Prior to seizing your assets (including bank accounts and wages), the IRS must issue a Final Notice of Intent to Levy to you and wait a minimum of 30 days before seizing. There are some exceptions to this requirement (i.e. collection of tax is in jeopardy, levy is served on a State to collect a Federal tax liability from a State refund, a disqualified employment tax levy, or a Federal Contractor levy is served), but these only apply in a limited number of situations and, for the purpose of this article, will not be discussed.
With the vast majority of cases, the Final Notice of Intent to Levy is required prior to levying or seizing assets. The Final Notice comes with an appeal right. However, if you do not exercise this right, the IRS may, after 30 days, be able to seize your assets and use the proceeds to pay down or pay off your IRS tax liability.
It is important to understand that the IRS means business when it issues a Final Notice of Intent to Levy. If you receive or have received one of these notices, I strongly recommend that you seek the advice of an experienced and reputable tax relief professional right away.
The Seizure Process
When the IRS seizes your assets, it takes physical custody of them. The IRS collection action varies depending on the nature of the asset. If the IRS is seizing bank accounts or other liquid accounts, the IRS freezes the accounts by sending the holder of your account a Notice of Levy.
It is important to note that the funds in the bank account are frozen for 21 days, during which time you could argue to have the levy released, and your assets relinquished back to you. If the IRS is seizing personal property, they may hire a moving company to assist them in removing the assets from your possession. If the IRS is seizing real property (real estate), the IRS follows the procedures set forth in Sections 6335 and 6336 of the Internal Revenue Code.
The IRS has broad power to seize business assets if your business owes back taxes. After thirty days elapses from the issuance of the Final Notice of Intent to Levy, the IRS can levy (seize) bank accounts and accounts receivable.
The IRS must get a court order or magistrate’s order to seize assets located within the business (unless the business consents), but it can seize any assets that are on public land without the court order. The IRS can ultimately padlock your business if the tax liability remains unpaid and no resolution is reached.
Is the IRS Bluffing?
One tactic that I have seen some IRS Revenue Officers (tax collectors) utilize is as follows. On occasion, they will make aggressive demands and threaten to seize property if their demands are not met immediately, even though they have not gone through the prerequisite procedures to enforce their threat. What’s more, they don’t tell you that they haven’t gone through the prerequisite procedures.
In this type of situation, the immediacy of their threat is really little more than a bluff intended to bully taxpayers into making a big and unwanted sacrifice. Should you call their bluff? The answer is absolutely not, unless you are being represented by an experienced tax relief professional who has the capability of determining that the IRS has yet to follow its requisite procedures, and that the threat is, therefore, hollow—at least for the time being.
If the Revenue Officer’s demands are not met and the Revenue Officer (RO) has yet to follow the required procedures, sooner or later, the RO will likely satisfy the prerequisite procedures for enforcement, and they will carry through with their threat. However, during this timeframe, it may be possible to move the case into appeals or to negotiate some kind of alternate arrangement that will save the taxpayer from making the unwanted sacrifice. Thus, it can really pay off to have a professional who knows the IRS collection procedures on your side.
There is a surprisingly wide variety of different methods that can be utilized to stop the seizure of your assets. Your best bet is to seek advice from a qualified tax professional in the event that you owe back taxes and are unable to promptly full pay the tax debt.
If you would like to learn whether your assets are at risk of seizure, what can be done to protect your assets, or you simply have back tax questions, pick up the phone and give Fortress Tax Relief a call. We have caring and knowledgeable professionals on staff who would be happy to evaluate your tax situation with you over the phone, and who can tailor solution specific to your needs and circumstances. The call is free, so give us a call now.