When a taxpayer has an unpaid tax debt, the IRS has several tools at its disposable to collect the taxes it’s owed. One of these tools is a levy, which is the taking of the taxpayer’s property and assets. The IRS will then use the property to pay off the taxpayer’s debt. But before the tax collection process gets to that point, a few things must happen first.
Before a Seizure Can Take Place
In most cases, before the IRS can actually seize an asset, it must first make contact with the taxpayer explaining the tax debt. This first contact will usually be a letter identifying the debt, including any penalties and interest the taxpayer must pay. It’s the IRS’ hope that this initial contact will push the taxpayer to completely pay the tax debt or at least make payment arrangements with the IRS, such as a payment plan or offer in compromise.
Assuming a taxpayer ignores the IRS’ collection efforts or does not set up a payment arrangement, the IRS will place a tax lien on the taxpayer’s property. If the taxpayer still doesn’t cooperate, the IRS will have no choice but to seize the taxpayer’s property by imposing a tax levy. The most common types of assets the IRS places levies on are wages (often by garnishment), real property and personal property.
How a Seizure Occurs
If the IRS wants to begin garnishing a taxpayer’s wages, it does not need to get a court order to do so. Instead, the IRS can contact the taxpayer’s employer directly and make them withhold a portion of the taxpayer’s paycheck and provide it to the IRS for payment of the taxpayer’s tax debt.
The IRS can’t take the taxpayer’s entire paycheck, as it must leave behind a certain minimum amount depending on the taxpayer’s filing status. Basically, the IRS can take as much as it wants, unless it’s taking so much as to make the taxpayer destitute.
As for seizing a home, the IRS will essentially show up and ask to take possession of the property. If the taxpayer grants this permission, they will sign some paperwork and the IRS will take over the property. If the taxpayer doesn’t grant permission (which is often the case), the IRS will request a court order then return to the property with law enforcement officers.
Exemptions from Seizure
The types of property the IRS can seize have few limits, but there are certain types of property that the IRS must leave for the taxpayer, such as tools and supplies necessary for work or school, basic clothing, up to about $8,000 worth of personal effects and most of the public assistance a taxpayer receives.
A personal vehicle is not exempt from an IRS seizure. But in many cases, the IRS will not take something that is critical to a taxpayer’s ability to pay its tax debt, such as a car or truck. The IRS understands that it makes little sense to take away a vehicle that’s probably only worth a few thousand dollars only to have it result in the taxpayer lose his or her job and be unable to make tax payments to the IRS.
What a Taxpayer Can Do if Property Is Seized
The actual taking of property is expensive and time-consuming for the IRS, so it’s usually a route of last resort. In many instances, a seizure has occurred due to miscommunication or a misunderstanding between the IRS and the taxpayer. The taxpayer may also have certain legal procedures they can use to stop the seizure. However, it’s best to consult with a tax professional in these situations to get a full understanding of the legal options and find a solution that makes the most sense.