The IRS may seize your real estate, car, or other property to satisfy delinquent tax debt. The IRS will sell your interest in the property and apply the proceeds, after the costs of the sale, to your tax debt.
Before selling your property, the IRS will calculate a minimum bid price. You will be given the chance to challenge the fair market value determination of your property.
Then, the IRS will notify you and the public of the pending sale, and wait at least 10 days before proceeding with the sale of your house or other property. If there is money left over after the costs of the seizure and sale and your tax debt has been satisfied, you should receive a refund.
Special Procedures for the Seizure of a Principal Residence
The IRS will send your several notices before levying your principal residence, but the actual seizure will be handled by the Department of Justice and must be approved by a judge. The IRS cannot seize your home by surprise, without first giving you many opportunities to contest the seizure, and then obtaining a court judgement that approves the sale of your home to satisfy your tax debt.
The Department of Justice will file a complaint in U.S. District Court, where you will be given another opportunity to contest the sale of your home. You may be able to use several defenses, such as a lack of equity or a violation of IRS policies regarding seizures, to prevent the seizure and sale of your home.
IRS Policies Regarding Seizures
While the IRS has the right to seize your house or car, they would generally prefer to use other collection methods, such as a bank account levy or wage garnishment. Of course, the IRS would rather not have to collect at all by getting you to agree to an installment agreement or Offer in Compromise.
One reason the IRS is hesitant to seize property is the requirement that the IRS make an equity determination prior to seizure. The IRS cannot seize your property just to punish you—they need to actually expect to get paid from the proceeds. If you owe more on your house than it is worth at fair market value, the IRS is not going to bother seizing it.
The IRS also has a policy of not seizing property from taxpayers who either can’t pay or are engaged in bona fide negotiations to pay. This means that the IRS will not seize property from someone who is experiencing financial hardship, or is in the process of submitting an Offer in Compromise or installment agreement plan. They also will not seize property from a taxpayer who does not agree with the tax assessment and is working with the IRS to have their account adjusted.
However, if you simply “won’t pay”, your property may be seized. Taxpayers who do not cooperate with the IRS, who refuse to enter into a payment plan, or who use unsupported tax arguments would all fit into this category.
Like other IRS collection actions, you can appeal the seizure of your home, car, or other property either before or after it is seized. The IRS may decide not to levy your property for several reasons—if you agree to pay your tax debt, show that the seizure will cause an immediate economic hardship, or if you show that the seizure action is improper for some other reason.