The list of when the IRS cannot take property is fairly extensive, so I will do this in parts to break it down simply. Here is Part I of when the IRS is prohibited from taking collection action:
- When there is insufficient equity in the property. There must be sufficient net proceeds from the sale to provide funds to apply to the taxpayer’s unpaid tax liabilities. This protects, for example, your car that is worth $5,000 but has a $5,000 loan against it – there is no equity for the IRS (the loan would be paid first if the IRS took it). Same goes for houses, personal belongings, etc.
- When an installment agreement is in effect. If you are making payments, the IRS will leave you alone.
- If your installment agreement is terminated or your request for an IA is denied, you have the right to appeal those decisions. The IRS cannot take action during the 30 day time period after notice of termination or denial, and while an appeal filed within that 30 day period is pending.
- When an offer in compromise is pending, and while an appeal of a rejected offer is being decided.
- When an innocent spouse claim is pending. I have had clients with IRS garnishments come into my office frustrated because they did not have involvement or knowledge of the liability and have a strong innocent spouse claim. Upon submission of the innocent spouse claim, the IRS garnishment is immediately released. There is no further collection action while the claim is being reviewed by the IRS.
Read Part II of this series for five more situations that prevent the IRS from taking collection action.