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. The IRS can legally seize your assets to pay off a tax balance you owe. This process is called a levy (not to be confused with a lien) and it allows the government to legally take and sell assets to cover your debt. Unlike a lien, which is simply a legal claim against your assets, a levy is the actual taking of property. This can include money from your bank account or the sale of your car.
The IRS doesn’t need court approval. In most cases, they can issue levies after providing you with proper notice, including a Final Notice of Intent to Levy and your right to a hearing. 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?
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 debt. A portion of your wages is exempt based on your filing status and number of dependents, but 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 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.
Bank Accounts
The IRS can levy funds from your bank accounts to satisfy your tax debt. Unlike wage levies, bank levies are one-time only. This means the IRS can only take what is in the bank account on the day the levy hits. The bank is required to hold the funds for 21 days before releasing them to the IRS, giving you time to respond or resolve the issue. You can deposit and withdraw funds from the account in the future. However, the IRS can always issue more levies at any time. The IRS typically 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 take 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).
Property and Real Estate
The IRS can place a lien on your property, such as your house or other real estate, establishing their legal claim to it. That includes your primary residence, though a court order is required before the IRS can seize and sell your home. 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.
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.
Business Assets
For business owners, the IRS can seize business assets, including equipment, tools, bank accounts, cash on hand, inventory, and accounts receivable. This can be devastating for a business, as it can disrupt operations and lead to financial instability. While there are some protections for “tools of the trade,” this exemption is limited by dollar value. If your business equipment is valuable, it may be fair game.
Future Tax Refunds
If you’re due a federal or state tax refund while owing back taxes, the IRS can seize that refund and apply it to your balance. 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 do I protect my assets from the IRS?
To protect your assets from IRS seizure, stay current on tax payments, respond promptly to IRS notices, and consider requesting an installment agreement, offer in compromise, or currently not collectible status. You can also request a Collection Due Process hearing if you receive a Final Notice of Intent to Levy.
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 take your car?
Yes, the IRS can seize your vehicle if you have unpaid tax debt and fail to resolve it after receiving multiple warnings. Seizure of personal vehicles is less common than wage or bank levies but is legally permitted.
Can the IRS go after inheritance?
The IRS can seize an inheritance you receive if you owe back taxes and the funds or assets are accessible to you. Once the inheritance is in your name, it becomes subject to levy like other personal property or accounts.
How common is it for the IRS to seize property?
Property seizures by the IRS are relatively rare and usually occur only after other collection methods fail. Most tax debts are resolved through wage garnishments, bank levies, or payment plans before asset seizure becomes necessary.
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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