IRS Home Seizure

Key takeaways:

• The IRS can technically take your home for unpaid taxes, but this outcome is very uncommon.
• Wage garnishments and bank levies are more likely than the loss of your home.
• A lien does not mean that the IRS is going to take your home; it just secures the government’s interest in your assets.
• Learning more about the IRS collection process and payment options can help you avoid losing your home.

Can the IRS Take Your Home?

Yes—But It’s Unlikely

The IRS is legally allowed to take a taxpayer’s home if they have failed to pay their taxes and owe over $5,000. However, this doesn’t mean that the IRS is ready to seize a taxpayer’s home at a moment’s notice. There’s quite a bit of nuance around this topic, and whenever possible, the IRS will take other paths to secure the debt.

So, yes, the IRS can seize your home, but it is exceedingly rare. Despite the IRS’s tough reputation, they don’t want to leave people without homes. They will only take this drastic step if every other solution fails.

Consider, for example, a taxpayer with a very large tax debt. The IRS has reached out to them time and time again, but the taxpayer makes no effort to pay their debt. Even though the IRS has offered payment options, the taxpayer dodges notices and evades collection efforts. The tax debt will keep growing, and the risk of home seizure increases as well. Ultimately, the only way for the IRS to get what they are owed is to seize the taxpayer’s home.

The Legal Authority for Home Seizure

Under IRC Section 6334, homes are not exempt from seizure by the IRS. The law states that the IRS can levy a taxpayer’s principal residence if they have the court’s approval. However, residences are exempt from seizure when a taxpayer owes $5,000 or less.

The IRS Collection Process and Where Home Seizures Fit In

The IRS does not like forcing a taxpayer’s hand. Whenever possible, they would prefer to help taxpayers set up a voluntary payment arrangement. As a result, the IRS takes numerous steps before home seizure is even on the table including the following.

Notices

Legally, the IRS must provide proper notice before seizing a taxpayer’s assets. However, they go beyond the legal requirement and follow strict protocols to ensure that they give taxpayers plenty of chances to address their tax debt. You’ll likely receive the following notices if you fall behind on tax payments:

• CP14: Notice CP14 just informs you that you owe money to the IRS.
• CP501: This follow-up notice reminds you that you still owe the balance referred to in CP14.
• CP503: At this point, communication from the IRS gets a little more urgent. They still have not received payment on your tax debt and will have to consider other options if you do not pay.
• CP504: CP504 is the IRS’s official Notice of Intent to Levy. This letter allows them to levy your state tax refunds.
• Letter 1058/LT11: LT11/Letter 1058 is the most urgent communication you’ll receive from the IRS. If you do not act right away to make a payment or set up a payment plan, the IRS intends to levy your assets or place a lien on your property.

You’ll notice that CP504 includes the language “notice of intent to levy your property or rights to property.” This is where people get the idea that the IRS will take their home. While your house is part of your property that the IRS can levy, that isn’t what they usually mean.

Tax Liens

The IRS may choose to place a lien on your property. When they take this step, they are placing a legal claim on your property. This includes your home but also includes your wages, bank accounts, vehicles, and other assets. The term lien is often used in reference to homes—for example, a mechanic’s lien or the lien placed on your home by your mortgage holder—so many people see that the IRS is considering a lien and assume that their home is at risk.

Steps the IRS Takes Before Taking Your Home

When a taxpayer does lose their house to the IRS, it comes at the end of a very long and arduous collection process. Before the IRS jumps to this incredibly drastic and time-consuming measure, they first try to collect tax debt by garnishing wages, seizing bank accounts, or taking other assets, such as vehicles or business equipment.

Legal Requirements for Home Seizure

Prior to taking a taxpayer’s home, the IRS has to clear several legal hurdles. First, they have to provide a written notice that gives the taxpayer 30 days to pay their tax debt and avoid seizure. Second, they must exhaust all other collection methods and still be unable to collect the money they are owed. Finally, they must get approval from the court.

When Home Seizure Becomes a Risk

If the vast majority of delinquent taxpayers aren’t at risk of having their homes taken, when does the IRS use this option?

The IRS may attempt to seize an individual’s home if the individual has a history of noncompliance, marked by intentionally ignoring IRS notices and evading collection efforts.

This option may also be used if a taxpayer’s tax debt is extremely high. For example, someone who owes over $100,000 but has made no attempt to pay off the tax debt or work with the IRS may lead the IRS to believe that home seizure is their only real option.

Finally, home seizure is more widely used when a taxpayer intentionally defrauds the IRS or evades taxes for their own financial benefit. Again, this is not relevant for the majority of taxpayers. Most tax debt is the result of inability to pay or tax errors, not malice or deceit.

How to Protect Your Home

If you’re afraid that your home is at risk, know that you have rights and that there are many ways to handle your tax debt and avoid the loss of your home.

Know Your Rights

As a taxpayer, you have options when the IRS indicates that asset seizure is a possibility. You can appeal their decision via a Collection Due Process hearing, which allows you to discuss ways to avoid enforced collection. A CDP hearing also gives you the chance to dispute the amount you owe.

You should also know that IRS Publication 1, Your Rights as a Taxpayer, specifically addresses your home. It states that the IRS cannot take your primary home without court approval. The IRS must also show that there is no reasonable other way to collect the tax debt.

Take Action—Now

The sooner you take action, the better. If you wait to reach out to the IRS, they have no way of knowing that you have received their notices and that you plan on addressing your tax debt. When they don’t hear anything from taxpayers, they can only assume that they need to step up their collection efforts. You can contact the IRS directly to explain your situation or work with a tax professional who can help you explore alternatives and contact the IRS on your behalf.

If you believe a CDP hearing is in your best interest, make sure you request it within the timeframe noted on your most recent IRS notice.

Explore Your Resolution Options

The IRS has many payment options available beyond just paying upfront and in full. You can look into:

• Installment agreement: If you can pay off your tax debt in full by spreading it over 72 monthly payments, this may be a convenient option for you. Most people can apply online and get an immediate decision. Those with substantial tax debt may need to provide financial information to prove that they can make monthly payments.
• Partial payment installment agreement: Taxpayers who can make monthly payments but cannot afford the amount needed to pay off their debt in 72 months may apply for a PPIA. This requires that you show that paying in full would cause undue hardship.
• Offer in compromise: Taxpayers with limited income and assets and/or extreme special circumstances may qualify for an offer in compromise. If you meet their qualifications and comply with federal tax laws for five years after your offer is accepted, you may settle your tax debt for less than you owe.
• Currently not collectible: Although this is only a temporary solution, it can give you some breathing room as you plan your next steps. The IRS may declare a taxpayer currently not collectible if they cannot pay their tax debt at all. This stops collection efforts until their financial situation changes.
• Lien withdrawal: If you enter a direct debit installment agreement, you may be able to ask the IRS to withdraw their Notice of Federal Tax Lien. This can put you in better standing with your creditors and give you access to equity in your assets.

Common Misconceptions About Tax Liens and Home Seizures

There are a number of myths and misconceptions about the IRS’s ability and intention to take taxpayers’ homes.

• The IRS placed a lien on my property; they plan on taking my house. A lien is not the same as property seizure. A lien simply gives the IRS a claim on your property. Should you sell the property, the IRS will be paid out of the proceeds. A lien also encourages taxpayers to pay off their debt to avoid further collection actions.
• I received a notice threatening property seizure, which means that the IRS is taking steps to seize my home. When the IRS does seize a taxpayer’s property, they generally start with wage garnishment or bank account seizure—not real estate.

Perhaps the most important thing to remember is that you can generally avoid the most extreme collection actions by simply addressing your tax debt early. Even if you cannot afford to pay in full, working with the IRS or a tax attorney at least shows the IRS you are not trying to avoid your tax liability.

If you’ve received a notice from the IRS and you’re panicking over the prospect of losing your home, know that this is an avoidable outcome. Additionally, it is an extremely rare outcome that the IRS only turns to in the most severe cases. Being proactive is the best thing you can do for your financial well-being and future. When the IRS knows that a taxpayer is actively attempting to pay off their tax debt, they are less likely to take aggressive steps to collect the amount owed.

Don’t try to take on the IRS by yourself! Get the benefits of an experienced and licensed tax professional fighting on your side. For more personalized assistance with your tax issues and to protect your home, turn to the team at McLaud Law P.C. Fill out our online contact form or call us at 585-397-7785 to set up a time to discuss your tax concerns.

Frequently Asked Questions

Can the IRS make you homeless by taking your home?

If seizing your house would make you and your family homeless, the IRS will do everything it can to avoid this step. This isn’t just beneficial for taxpayers; avoiding home seizure is also good for the IRS’s public image.

What’s the difference between a tax lien and a tax levy?

A lien is a legal claim to the property, but it does not actually take the property from the taxpayer. A tax levy involves the IRS seizing the property. If they seize wages or bank accounts, they apply that money to your tax debt. If they seize other assets, they sell them and use the proceeds to pay off your tax debt.

Will the IRS take my house if I am on a payment plan?

If you are already taking steps to pay off your tax debt, the IRS will not issue a levy and seize your home. It’s important to stay current and avoid defaulting on the agreement to protect your assets.

What happens if I ignore IRS notices about unpaid taxes?

The IRS will continue to reach out to you until you either pay or are forced to seek payment via lien, levy, or garnishment.

How do I know if my home is at risk of seizure?

The IRS will send multiple notices before this occurs. If you owe more than $5,000 and the IRS has issued a final notice, your home could be at risk. However, it’s still more likely that the IRS would first seize your bank accounts or wages.

This communication is Attorney Advertising. It is presented for informational purposes only and does not constitute legal advice. Every legal situation is different, and prior results do not guarantee a similar outcome. This communication does not create an attorney-client relationship between McLaud Law P.C. and the recipient.