Key Takeaways:
- The IRS can seize a wide range of assets, including wages, bank accounts, retirement funds, property, vehicles, business assets, and cryptocurrency, through a legal process called a levy.
- A levy is not the same as a lien. It allows the IRS to take and sell assets to cover unpaid tax debt, typically after multiple notices and warnings.
- Certain property is protected from seizure, such as essential clothing, limited personal effects, unemployment benefits, child support, and tools of your trade (up to a value limit).
- The IRS can garnish wages continuously, levy bank accounts in one-time actions, and even apply federal and state tax refunds to outstanding tax balances.
- Digital assets like Bitcoin and Ethereum are now subject to IRS levies, with the agency actively tracing undisclosed holdings using blockchain technology.
- Taxpayers have rights, including the opportunity to request a Collection Due Process hearing within 30 days of receiving a Final Notice of Intent to Levy.
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. An IRS lien and levy are both tools used to collect unpaid taxes, but they work differently. A lien is a legal claim the IRS places on your property, protecting the government’s interest in your assets. A levy is a legal seizure of a taxpayer’s property by the IRS to satisfy unpaid tax obligations. This typically occurrs after multiple notices and collection attempts.
The IRS does not need court approval to issue levies. However, before seizing assets, they generally provide a “Final Notice of Intent to Levy and Notice of Your Right to a Hearing,” giving you at least 30 days to respond or appeal. Asset seizure is considered a last resort. The IRS will first attempt to collect through multiple notices and other means to give you the opportunity to resolve the debt, such as by entering into installment agreements or offers in compromise. If you do not respond to IRS notices, a tax lien may be imposed. Only after these steps and a final warning will the IRS proceed to seize your assets.
Which Assets Can the IRS Seize?
Once the IRS has issued all required notices and given you a chance to respond, they can move forward with levying your assets. 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:
Wages and Paychecks
If you’re a W-2 employee, the IRS can garnish a portion of your paycheck on an ongoing basis until the debt is satisfied. This means that they can legally order your employer to withdraw a percentage of your salary to pay off your tax bill. A portion of your wages is exempt based on your filing status and number of dependents. However, there’s no upper limit on how much time the levy can remain in place. 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 self-employed income, rent from tenants, accounts receivable, Social Security benefits, and even commissions. However, the IRS typically cannot seize the death benefit itself. That is 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.
Bank Accounts
The IRS can levy funds from your bank accounts, including checking, savings, and money market accounts. They can also levy investment accounts like stocks, bonds, and mutual funds. Even retirement accounts such as 401(k)s, IRAs, and pensions are up for grabs. However, there are specific rules and potential penalties may apply to retirement funds.
Unlike wage levies, bank and investment levies are one-time only, meaning the IRS can only take the funds available in the account on the day the levy is issued. Financial institutions are required to hold the funds for 21 days before releasing them to the IRS. This gives you time to respond or resolve the issue. You may continue to deposit or withdraw funds in the future, but the IRS can issue additional levies at any time. Typically, the IRS notifies you of this action, giving you a short window to contest the levy or arrange payment.
Investment and Retirement Accounts
The IRS has the legal authority to seize your 401(k) and other retirement savings, including IRAs. The IRS can also levy brokerage accounts. 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. Even your Social Security benefits can be partially levied through the Federal Payment Levy Program (FPLP).
Real Estate
The IRS can place a lien on your real estate, including your primary residence, vacation homes, and other property, establishing a legal claim to it. Seizing a primary residence requires a court order and is considered a last resort. That said, the IRS needs to go through a judicial process before taking such action. Other properties, such as vacation homes or investment real estate, may also be subject to seizure. If property is sold, it typically occurs through a public auction, and the proceeds are applied to satisfy your tax bill.
Vehicles and Other Personal Property
The IRS can also confiscate and sell cars, boats, jewelry, artwork, or other personal assets to satisfy a tax debt. Before seizing these items, the IRS usually considers the value of the property relative to the amount owed. This is because the cost of seizure and sale may not always justify the action.
Life Insurance
In certain cases, the IRS can seize the cash value of life insurance policies, particularly the cash surrender value. If you are the beneficiary of such a policy and owe the IRS, the agency can levy those proceeds. Additionally, if you have a life insurance policy with no named beneficiary and owe taxes, the IRS can seize the policy funds before they are distributed to your next of kin.
Business Assets
For business owners, the IRS can seize business bank accounts and a variety of business assets. This includes equipment, tools, cash on hand, inventory, and accounts receivable. This can seriously disrupt operations and cause financial instability. Some “tools of the trade” may be protected, but this exemption has a limited dollar value. Valuable business equipment and property remain subject to seizure.
Future Tax Refunds
Future federal and state tax refunds can be seized by the IRS and applied to the outstanding tax liability. This often happens automatically through the Treasury Offset Program.
Cryptocurrency and Other Digital Assets
In recent years, the IRS has aggressively moved to seize digital assets like Bitcoin and Ethereum. Because the IRS classifies crypto as property, it is subject to levy just like real estate or stocks. The IRS has already seized billions of dollars’ worth of crypto and now works with blockchain analytics firms to trace wallet activity. If you owe taxes and have undisclosed crypto holdings, these are very much at risk.
Which Assets Can the IRS Not Seize?
Not everything you own is up for grabs. 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. According to 26 CFR § 301.6334-1, the following are protected:
- Wearing apparel and school books
- Fuel, furniture, and personal effects up to a set dollar amount
- Certain annuities and pension payments
- Unemployment benefits
- Workers’ compensation
- Child support
- Minimum exemption for wages, salaries, and other income
- Tools necessary for your trade or business (up to a limit)
- Undelivered mail
Your primary residence is generally protected unless the IRS gets a court order. Even then, it’s considered a last resort and typically pursued only for significant tax debts.
After a Seizure: What Happens Next?
If the IRS has already seized your property, all is not lost. You may still have options for recovering it or at least preventing a sale.
IRS Sale Process
After taking your property, the IRS must give you at least 10 days’ notice before selling it, typically through a public auction. The sale proceeds go toward your tax debt. If there’s anything left over, you’re entitled to the excess.
How to Get Your Property Back
You can request that the IRS release the seized property or levy under certain conditions:
- You paid the tax debt in full
- The seizure is causing undue economic hardship
- You entered into an installment agreement
- The property’s value exceeds your debt and releasing it won’t hinder collection
- The levy was premature or improper
Your Rights and Options
If you receive a Notice of Intent to Levy, you have rights and you should act quickly to preserve them. You have 30 days to request a Collection Due Process (CDP) hearing, where you can dispute the tax liability, propose payment options, or raise financial hardship concerns. During this window, the IRS can’t seize your property.
Other options include:
- Installment Agreements: spreading your balance out over time
- Offer in Compromise: settling for less than the full amount
- Currently Not Collectible (CNC) Status: temporarily pausing collection efforts due to financial hardship
Frequently Asked Questions
What assets can the IRS not take?
The IRS cannot seize assets that are legally exempt from levy, such as essential clothing, unemployment benefits, certain public assistance payments, limited tools of the trade (up to a set value), and a portion of wages needed to meet basic living expenses.
How long does the IRS typically wait between issuing a Final Notice of Intent to Levy and seizing property?
After issuing a Final Notice of Intent to Levy, the IRS typically waits at least 30 days before seizing property, giving taxpayers a short window to respond, appeal, or arrange payment. Acting quickly during this period can prevent asset seizure and additional penalties.
Can the IRS take all the money in your bank account?
Yes, the IRS can levy your entire bank account balance at the time of seizure, up to the amount you owe in unpaid taxes. However, the levy is a one-time action unless reissued, and you’ll receive notice beforehand.
Can the IRS seize assets held in joint ownership or only my individual share?
The IRS can levy a joint bank account, and all funds may be subject to seizure even if only one account holder owes taxes. The non-liable owner can request a partial release by proving which funds belong to them, though this can be difficult.
Can the IRS go after an inheritance?
The IRS can seize inherited assets, including money deposited into bank accounts or real estate acquired through inheritance, if you owe back taxes and the inheritance is legally transferred to you. Once in your name, these inherited assets become subject to IRS levy just like other personal property or accounts.
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. If you’re concerned about a possible seizure or already received a levy notice, consult a tax professional immediately. The earlier you act, the more options you’ll have to resolve the situation. Optima Tax Relief is the nation’s leading tax resolution firm with over a decade of experience helping taxpayers.
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