Owing the IRS is nerve-wracking enough without having to worry about losing your house to the tax man.
But are your concerns about losing the roof over your head based on reality?
Are you really at risk for the IRS to take your house away to pay your tax debt?
The good news is that the IRS seizes and sells very few houses – in a given year, it is less than 500 over the entire country. That’s out of millions of tax debts owed.
In other words, the IRS does not make putting taxpayers out on the street a top priority. For starters, the risk is low.
But it does, and can happen.
Here are the factors that can put your home at risk of an IRS seizure, along with solutions if losing your home to the IRS is a possibility:
1. Does your house have equity? If not, then the IRS is prevented by law from taking it from you. Equity is defined by the IRS as the fair market value of your house, less the amount owed on your mortgages. And in most cases, the IRS will discount the fair market value of your house by a minimum of 20% in calculating value. So, if your house is worth $100,000, the IRS will probably value it at $80,000 for purposes of selling it. If you owe your bank $85,000, there is no equity. And the IRS cannot take it – you are protected by law. They cannot take your property as it would not results in a recovery or payment on your tax bill.
2. How much do you owe the IRS? Simply put, the more you owe, the more aggressive the IRS will likely be in determining how to collect from you. There are no hard and fast rules here, but generally IRS debts of $25,000 or $50,000 are not considered severe enough for the IRS to justify a harsh measure like house seizure.
The risk factors of the IRS taking your house increase in tandem with your IRS debt and the equity in your house.
Owe $500,000 with $500,000 of equity in your house? You could be at risk.
Owe $500,000 with no equity in your house? You are not at risk (there is no equity).
3. Are you cooperating with the IRS? A sure-fire way to rise the ire of an IRS agent is to not cooperate with her. Not cooperating includes: unreturned phone calls to a Revenue Officer; not responding to a Revenue Officer’s request for financial information; ignoring IRS collection letters and demands; and not staying current on tax filings and estimated tax payments.
To be sure, the risk of bad things happening to you – like seizure of your house – increases proportionally to the kind of interactions you have with the IRS. Make nice. When your head is in the mouth of the bear, say nice bear.
4. Have you been contacted by an IRS Revenue Officer? High-level seizures like this can only be carried out by IRS Revenue Officers. By comparison, the IRS Automated Collection Service (ACS) – which is a 1-800 telephone call center operated by the IRS – cannot take your house. If you have been contacted by a Revenue Officer, you will know it. They often start a case by making a personal visit to your home or office. So unless you have been contacted by a local IRS agent, there is no immenint risk of house seizure.
5. Has the IRS sent you a Final Notice of Intent to Levy? Before the IRS can take your house (or any of your property, for that matter), they have to first send you a Final Notice of Intent to Levy.
Even if you are otherwise at risk for a house seizure, in most every situation the IRS cannot implement it until they send you this Final Notice. And after the Final Notice is sent, you have 30 days to file a collection due process appeal with the IRS.
Your appeal accomplishes several things: (1) It puts any IRS seizures on hold while it is pending, stopping the IRS in their tracks (2) It transfers your case from the IRS collection division to the IRS office of appeals for resolution, often a benefit to negotiations (3) Gives you the benefit of negotiating resolution without the threat of the IRS blowing past you and taking your house and (4) Permits you to ask the U.S. Tax Court to review any IRS decision to take your house.
In other words, you have rights when it comes to protecting your assets from the IRS before they are seized through the filing of a collection due process appeal. And remember, this appeal stops the IRS from taking your house once it is filed.
If you are unsure if you have received a Final Notice of Intent to Levy, we can contact the IRS and obtain transcripts of their actions on your account to verify.
6. Using collection alternatives to prevent the loss of your house. Even if you are at risk, it is important to bear in mind that solutions do exist to slow the IRS down. The IRS is empowered to accept alternatives to house seizure, including installment payment plans. For example, the IRS might be amenable to accept an installment agreement that repays the liability rather than taking the more intrusive route of seizing your house. Either way, they get paid. Bankruptcy can also stop IRS seizures, and permit you to force the IRS to take a court-ordered repayment plan if they resist one voluntarily.
Lastly, know that the IRS does not actually sell your home. And it does not happen overnight, by surprise to you. In addition to the Final Notice of Intent to Levy requirement, house seizures must be implemented by the U.S. Department of Justice by the filing of a foreclosure suit in U.S. District Court. If you are working with a Revenue Officer, the Revenue Officer will not one day show up at your house and sell it. House seizures cannot be completed by the IRS on their own – tax laws requires judicial approval by the filing of a lawsuit.
If an IRS Revenue Officer is threatening to take your house, it is important to know if your house is really at risk, and the process the IRS needs to walk through to take it. You have defenses, including collection due process appeals, offers of collection alternatives, and defending against the foreclosure lawsuit.