The IRS has broad authority when attempting to collect delinquent tax, but there are limitations to what collections actions they can take. The IRS generally has to follow certain procedures before they can levy, or seize, your property, and certain property is exempt from IRS seizure.
Generally, the IRS must send a taxpayer a Notice of Intent to Levy, which gives the taxpayer 30 days to request a Collection Due Process hearing. This gives you a chance to avoid the levy by negotiating an IRS installment agreement, an offer in compromise, or disputing the underlying tax liability, if you have not previously had an opportunity to do so.
The IRS also has a general policy to only seize a taxpayer’s assets as a last resort. If you are attempting to negotiate and cooperate, you should be able to work out an arrangement and prevent your assets from being levied.
That being said, the IRS still frequently uses levies, and the threat of levies, to satisfy delinquent tax debt. The IRS can seize your wages, all the money in your bank account, your retirement account, your Social Security benefits, your house, or your car.
Generally, the following property is exempt from IRS seizure:
- unemployment benefits
- certain annuity and pension benefits
- certain service-connected disability benefits for Veterans
- workers compensation
- certain public assistance payments
- income for court-ordered child support payments
There are also limitations on how much money the IRS can take from your wages. A single taxpayer with no dependents would receive $200 a week as the exemption amount—the IRS can seize all wages beyond this amount. Any bonuses or commissions can usually be entirely seized.
The IRS is also somewhat reluctant to seize a primary residence in many cases. One reason for this is a general policy to only seize property when net proceeds will help pay off your tax debt. If you do not have significant equity in your home, then the IRS may receive little to no benefit from seizing your house and selling it.
Despite these limitations, you are much better off negotiating with the IRS than hoping that they will not seize your property. You may be able to eliminate some of your tax debt, have tax penalties waived, or challenge the amount of tax liability. Consult with a tax attorney to come up with a plan to avoid, or appeal, an IRS levy of your property.