If you owe taxes, you may wonder, “Can the IRS come after my assets?” The short answer is yes. The longer answer is that before coming after your assets, the IRS must, in almost all cases, issue you a final notice of intent to levy letter, usually titled, “Final Notice, Notice of Intent to Levy.” Note, refusing to accept delivery of the final notice of intent to levy letter will fail to help because the IRS will still be able to go after your assets even if you refused delivery of the notice or never received it.
I know what you are thinking. Who mails letters these days? Who even reads mail? Who gives important notices by snail-mail? The IRS does. Yes, the largest bureaucracy, the IRS, is stuck in the stone ages where even rotary phones and fax machines still exist. It is no wonder the IRS wants, and is going to receive billions in more funding from Congress. Can you imagine Apple Inc. or Amazon using snail-mail or fax machines to communicate with millions of its customers? Apple and Amazon would go bankrupt. But I digress. Let us get back to the IRS trying to go after your assets.
Think of your back taxes as a boat floating down a river with a waterfall at the end. I am NOT talking about the Disney Magic Mountain type of boat ride. I am talking about the type of boat ride where you hold on for dear life. The further the boat floats down the river, the choppier and more turbulent the water comes. The water is ice that will cut to your bones. Eventually, the river throws the boat off a waterfall where a steep drop crashes and breaks your boat unto jagged rocks. At the end of it all, nothing remains of the boat but a few shattered wooden splinters. That is basically how the IRS goes about collecting on tax liabilities (the further you float down the collection process, the more aggressive the IRS becomes in trying to collect). It is not fun, you will not enjoy it, and, unlike Disney, it is not something you can get people to pay to ride.
You may also wonder, “When will the IRS come after my assets?” Basically, the IRS will come after your assets if or when the IRS determines it is easier to collect by taking and selling your assets than any other method the IRS can try to collect. Think of your assets like a carrot dangling in front of the IRS. How big is the carrot? How juicy is the carrot? How high is the carrot dangling. You get the idea. Next, I will give some examples of the IRS determining whether to go after assets.
Sitting on EASY to sell assets that add up to a big chunk of the taxes.
Let us assume you did not pay your taxes for many years and the taxes equal $100,000 as of today. Let us also assume you are sitting on $70,000 in various investments that you could EASILY sell. At this time, with your current income, you CANNOT pay off the $100,000 back taxes within the collection statute period (generally, the IRS has 10 years to collect from when you filed your taxes). In this scenario, the IRS may decide to seize your investments, sell them, and apply the proceeds toward the back taxes. Even if you could pay off the taxes within the collection statute period, the IRS may still decide to go after your investments.
Note, there is no bright line rule on whether the IRS will go after assets (unless you have entered into a tax resolution agreement with them, such as an Installment Agreement or an Offer in Compromise). Just think of the dangling carrot: how easy and tempting is your asset for the IRS to go after.
Sitting on DIFFICULT to sell assets that add up to a big chunk of the taxes.
Everything is the same as in example 1 except you are sitting on $150,000 in equity in your primary home ($500,000 fair market value minus $350,000 mortgage). Primary home means it is the home you live in. In this scenario, the IRS may decide to first ask to try to borrow against the home to pay toward the back taxes. If you do not qualify to borrow against your home, the IRS may decide it is NOT worth it take you to court to force you to sell the home or to seize it themselves (the IRS would spend a good amount in legal fees and other costs to do so).
Even if you were sitting on $500,000 in equity in your primary home, the IRS may still decide it is NOT worth it to try to go after your home, though they might if you simply refuse to do anything about your tax debt. However, if the home was NOT your primary home—maybe it is a rental or vacation home—the IRS may decide to go after the home (there is less red tape the IRS needs to go through to take a home that is NOT your primary residence).
Sitting on business assets where your business is profitable.
Let us assume your business did not pay its taxes for many years, or you continue to operate while accruing new taxes debts every quarter, and the taxes equal $100,000 as of today. Let us also assume you are sitting on $50,000 in equity in assets from various business equipment and inventory that you need to run the business that is profitable. At this time, with your current business’ net income, you CANNOT pay off the $100,000 back taxes within the collection statute period. However, you agree to pay the IRS the business’ net monthly income toward the back taxes. In this scenario, generally speaking, the IRS should NOT go after the business’ equity in assets.
Sitting on business assets where your business is NOT profitable.
Everything is the same as in example 4 except your business is NOT profitable and you CANNOT pay the IRS the taxes owed within the collection statute period. Generally speaking, the IRS may decide to go after the business’ equity in assets.
Note, usually, the IRS intentionally waits a while before trying to aggressively collect. This way, the IRS racks up the interest and penalties that can easily more than double the principal taxes owed.
Lastly, you may wonder, “What do I do if I am worried the IRS may come after my assets?” Well, just like most things in life, find someone who deals with the IRS for a living AND is really good at it. The IRS is NOT on your side. The IRS will try to collect as much as possible, as soon as possible. It is not uncommon for the IRS collection representatives to tell you half-truths in trying collect from you. Basically, you cannot trust the IRS especially when it comes to helping you minimize the risk of the IRS coming after your assets.
If you are concerned about seizure of your assets or implementing a potentially money-saving solution to your tax liability, pick up the phone and give Fortress Tax Relief a call. We have caring and knowledgeable tax professionals on staff who can help determine whether you qualify for tax relief. Fortress does not charge for a telephone consultation, so give us a call today.