It can be difficult and frustrating to deal with tax debt. You might be concerned about whether the IRS has the right to seize your assets if you owe taxes to them and haven’t taken steps to address the debt. Understanding which assets the IRS can seize is crucial for taxpayers, particularly those facing financial difficulties. Here’s a comprehensive overview of what the IRS can and cannot seize.
Can the IRS Seize My Assets?
The simple answer to this question is yes. The IRS can legally seize your assets to pay off a tax balance you owe. However, it is crucial to remember that the IRS normally views asset seizure as a last resort. Before initiating asset seizure, it is your taxpayer right to be notified. The IRS will make several attempts to collect the tax debt through IRS notices and other means before resorting to seizures. This is so you can attempt to correct the issue, perhaps with an installment agreement or offer in compromise. If you do not respond to IRS notices, they will impose a tax lien on your property. Only after this and a final warning will the IRS seize any assets.
Which Assets Can the IRS Seize?
Almost any item that has worth or equity and may be sold for cash can be seized by the IRS. Some of these assets can include:
Property
The IRS can place a lien on your property, such as your house or other real estate, establishing their legal claim to it. In some situations, they may seize and sell the property to recover the debt. However, seizing a primary residence is considered a last resort, and the IRS must go through a judicial process before doing so. The sale of the property typically occurs through a public auction, with the proceeds used to satisfy the tax debt.
Vehicles and Other Personal Assets
To satisfy your tax burden, the IRS may confiscate and sell your vehicles, boats, jewels, or other personal assets. However, the IRS typically considers the value of the vehicle and the amount of debt before deciding to seize it, as the cost of seizure and sale may not always justify the action.
Bank Accounts
The IRS can levy funds from your bank accounts to satisfy your tax debt. Bank levies are one-time only. This means the IRS can only take what is in the bank account now. You can deposit and withdraw funds from the account in the future. However, the IRS can always issue more levies in the future. The IRS typically notify you of this action, giving you a short window to contest the levy or arrange payment.
Retirement Accounts
The IRS has the legal authority to seize your 401(k) and other retirement savings, including self-employed plans. Although these accounts are shielded from creditors, the IRS has the legal right to confiscate funds from your retirement savings to recoup back taxes owed. However, certain rules and limitations apply, particularly regarding early withdrawal penalties and the protection of certain types of retirement accounts under federal and state laws.
Life Insurance
In certain cases, the IRS can even seize life insurance benefits, particularly if the policy has a cash surrender value. If you are the beneficiary of a life insurance policy and you owe the IRS, the IRS can seize those proceeds. Additionally, if you have a life insurance policy with no beneficiary named and you owe the IRS, the IRS can seize the policy funds before they are distributed to your next of kin.
Wages
The IRS has the authority to issue a wage garnishment, which means that they can legally order your employer to withdraw a percentage of your salary to pay off your tax debt. This can be a significant financial burden, as the levy continues until the tax debt is fully paid. The IRS also has the authority to seize other forms of income, including rental income, Social Security benefits, and even commissions. However, the IRS typically cannot seize the death benefit itself unless it has already been paid out and is part of the taxpayer’s estate. Additionally, term life insurance policies without a cash value are generally not subject to seizure.
Business Assets
For business owners, the IRS can seize business assets, including equipment, inventory, and accounts receivable. This can be devastating for a business, as it can disrupt operations and lead to financial instability. The IRS may also target the business’s bank accounts and income streams.
Which Assets Can the IRS Not Seize?
In general, any asset not necessary for your well-being and shelter (or the survival and shelter of your family) may be confiscated to pay the IRS what you owe. This can include:
Assistance provided by the Job Training Partnership Act
How Can I Protect My Assets from Being Seized by the IRS?
The good news is that an IRS asset seizure will never come as a surprise. Once you are aware that you owe the IRS, you should get to work on resolving the issue. However, we know that sometimes this isn’t always possible. You may have already received multiple IRS notices, and maybe one was an Intent to Levy. It’s not too late to get help from the nation’s leading tax resolution firm. Optima Tax Relief has over a decade of experience helping taxpayers with tough tax situations.
Today, Optima Tax Relief’s Lead Tax Attorney, Phil Hwang, discusses levies and garnishments, including which assets the IRS can seize and how the IRS can garnish your wages.
A levy is a legal seizure against your assets that results from owing back taxes. In truth, the IRS can seize just about anything you own. This includes property, bank accounts, retirement accounts, some life insurance policies, and even wages. How much of your wages the IRS levies to begin with depends on a few factors. Your filing status, dependents, and how often you receive a paycheck can affect their decision.
How Much Can the IRS Garnish?
Unfortunately, the IRS has full discretion on how much of your paycheck they will garnish. However, the IRS can typically only garnish your disposable income each month that is over the exempt amount according to your standard deduction. For example, single filers have a standard deduction of $13,850 in 2023. Let’s say a single filer with no dependents gets paid weekly. Their take home pay after the wage garnishment would be about $266 ($13,850 divided by 52 weeks). However, if you have dependents, or use a higher standard deduction, this amount will increase.
How to Remove Levies and Garnishments
Most taxpayers who have levies and garnishments just want to know how to get them removed. The simplest and most obvious answer is to pay the tax liability in full. However, sometimes this isn’t an option. If not, you can set up an installment agreement with the IRS or try to claim economic hardship. In any case, taking swift action is crucial. Additionally, having a team of tax professionals in your corner can help ease the process.
Don’t miss next week’s episode where Phil will discuss tax scams. See you next Friday!
If You Need Help Getting a Levy Released or Garnishment Removed, Contact Us Today for a Free Consultation
If you have an unpaid tax bill, you know the stress that comes with owing the IRS. The IRS is a powerful agency with the ability to collect what is owed to them using severe methods. These can include garnishing your wages or levying your bank accounts. With a 10-year statute of limitations, the agency has plenty of time to forcefully collect tax debts. While some taxpayers might want to ignore their tax bills, doing so comes with many risks. Here are some of the top risks of owing the IRS.
The IRS will collect.
The IRS will always warn you of intent to collect or enforce through IRS notices. After these notices have been ignored, the IRS will place you in their Automated Collection System (ACS). This basically means they can issue liens, levy your bank accounts, and garnish your wages. Alternatively, the IRS may turn your tax debt over to a debt-collection agency.
The IRS may file a federal tax lien.
If a tax balance goes unpaid and notices are ignored, the IRS can file a Notice of Federal Tax Lien. This basically lets creditors know that you have tax debt. A lien is a legal claim against a property, usually placed because the property owner owes someone money. Liens can severely hinder your ability to access credit. In addition, they can also damage your reputation since they are public information.
The IRS can seize your assets.
If a tax balance goes unpaid, the IRS will send you a Notice of Intent to Levy. If they do not hear from you after 30 days, they may proceed with the levy. The IRS is known to levy bank accounts, wages, and more. Wage levies, also called wage garnishments, are when the IRS takes some of your paycheck to put toward your unpaid tax bill. The amount they levy will depend on your filing status and number of dependents.
The IRS may also levy your bank account. If your tax balance is greater than your bank account balance, they are authorized to levy the entire account. The same goes for joint bank accounts that you have access to. If you own a small business, or do contract work, the IRS can levy these earnings. If you file your taxes and are due a tax refund, the IRS will keep the refund and apply it to your unpaid tax bill. The IRS will stop levying if you arrange a payment agreement or if you pay your tax bill in full.
The IRS will charge you penalties and interest.
Your tax bill doesn’t end with your unpaid taxes. The IRS will charge you interest until the balance is paid in full. The current rate for underpayment is 7% annually, at least through June 2023. On top of that interest, the IRS will charge a failure-to-pay penalty on your unpaid taxes. The current rate is about 0.5% per month or partial month the balance remains unpaid, for a maximum of 25% of your unpaid tax. The amount is increased to 1% per month or partial month if you do not pay within 10 days of receiving an IRS Notice of Intent to Levy. However, if you set up a payment plan with the IRS, the rate drops to 0.25% per month or partial month.
You may lose traveling privileges.
Under the Fixing America’s Surface Transportation (FAST) Act, the IRS requires your Department of State to deny passport applications and renewals submitted by taxpayers with tax bills of $52,000 or more. The State may also revoke your valid passport or limit your ability to travel outside the U.S.
How Can I Get Relief from My Tax Debt?
Clearly, the risks of owing the IRS are extreme and affect all facets of life. If you’ve been ignoring IRS notices coming through your mail, it may not be long before these risks apply to you. Ignoring your tax issues will certainly not make them disappear. Your best bet is to find a way to work with the IRS to see what your options for repayment are. We know how stressful this process can be, but Optima is here to help you with all of your tax issues.
