By Top Tax Staff | Feb 16, 2024 8:00:00 AM | IRS Collections
When you are seriously negligent in paying your IRS tax debt, you put your income and assets at risk of being seized. The IRS uses this extraordinary step to collect on debts when taxpayers have failed after repeated warnings to pay what they owe.Once this collective action is set in motion, it can set you up for immediate financial hardships. You can take actions now to pay your delinquent tax obligation by realizing what assets and types of income that the IRS can legally seize to satisfy your debt. When it comes to satisfying the debt you owe to the federal government, the IRS can seize just about any of your assets that have equity and can be resold for cash. In general, it can lay claim to everything from expensive jewelry you own to investments you have been making to save up for retirement. Further, you typically will have no way to reclaim these assets once they have been seized by the IRS. They will be sold off relatively quickly, usually at an auction that is open to the public. The money raised from the sale is then applied to the tax debt that you owe to the IRS. The goal of seizing assets is to satisfy the debt as quickly as possible since you failed to pay it off yourself. The IRS can seize any asset that you do not need for your basic survival and shelter. Some of the most common assets that are seized and then sold to satisfy tax debts include: The IRS does not view these types of assets as critical to you or your family's survival or shelter. These assets also have enough equity in them that they can be liquidated for their cash value. The cash raised from the sale is then applied to your tax debt. You should realize, however, that if you owe the IRS under $5000, your assets may not necessarily be seized and sold off. Instead, the IRS will seek to satisfy this smaller amount through other means including garnishing your income and seizing your federal tax refunds.
Editor’s Note: This post was originally published in June 2013 and has been updated for accuracy and comprehensiveness.
Items the IRS Can Seize
Assets Eligible for Seizure
Wage Garnishment
If the IRS decides to garnish your wages, it does not have to go to court to request an order to do so. Unlike other types of creditors, the IRS can simply begin garnishing your wages and even take a higher percentage than allowed by other bill collectors.
The garnishment will continue until your entire tax debt has been paid in full. Only after your account is satisfied will the levy against your wages be released.
Further, quitting your job or not working altogether will not excuse you from having to repay your tax debt. In fact, even if you are unemployed, the IRS may find other sources of income to seize to pay off what you owe. It can garnish sources of income like:
- Social Security benefits
- unemployment
- welfare or public assistance
- worker's compensation payments
It cannot legally seize money that you must pay in back child support. It also cannot lay claim to money that you receive from Social Security disability payments.
Items the IRS Cannot Seize
While the IRS has the right to seize a wide variety of assets and sources of income, it cannot legally lay claim to others especially those that you and your family need to survive on a daily basis. For instance, it cannot seize your primary residence or the car you use primarily to go to work or school. Seizing these assets would leave you and your family homeless and without a way to earn an income.
Second, it cannot seize clothing, tools, or other supplies that are necessary to go to work or school. It cannot lay claim to furniture that is valued at or under $7720. It also cannot seize work tools that are valued at or under $3520.
While the IRS technically has the right to seize sources of income like unemployment benefits and welfare payments, it typically will avoid doing so if these payments are your only source of income. However, it has the right to claim up to 15 percent of your Social Security payments or survivor's benefits to pay off your federal tax debt.
Finally, the IRS cannot seize any asset that has no equitable value out of spite. If a car or home, for instance, has no value and cannot be sold at auction, it must be left in your possession. Assets that do not have value that can be sold for cash must be excluded from being seized by the IRS.
Preventing Seizure of Income and Assets
The best way to avoid having your assets seized and wages garnished is to file your taxes and pay what you owe on time each year. However, if you cannot fulfill either of these obligations, you should communicate with the IRS and be honest about your financial situation.
You could be eligible for a payment arrangement, which would allow you to pay off your debt in monthly payments. The arrangement will take into consideration:
- how much money you make
- your household size
- how much you pay in rent, utilities, and other basic expenses
- the total value of your assets
The IRS will then determine a monthly amount that you should be able to pay toward your debt.
In extraordinary situations, your tax debt could be forgiven. Forgiving a tax debt is a rare occurrence. However, it could be possible if you experience hardships like:
- high medical costs
- divorce
- death of an immediate family member
- terminal illness
- job loss
- slowing down of your business
The IRS will ask for proof of these hardships before forgiving your tax debt.
The IRS has the right to seize a number of different assets to settle your tax obligation. This action is typically only taken when you are seriously delinquent in paying what you owe. You can avoid it by setting up a payment arrangement with the IRS or asking for a tax debt forgiveness if you experience certain hardships.
