Facing a tax lien or levy from the IRS can be scary and intimidating. However, the Internal Revenue Service does not have unlimited power when it comes to collecting unpaid taxes. Understanding what assets are off-limits can be invaluable if you find yourself in such a situation.
In this blog post, we’ll discuss everything you need to know about what assets the IRS cannot legally seize during an audit, allowing you to better prepare for potential tax liabilities down the road.
Table of Contents
What Is An IRS Levy?
An IRS Levy is a tool used by the Internal Revenue Service (IRS) to collect unpaid taxes from individuals or businesses. A levy allows the IRS to seize property or money up to the full amount owed to satisfy a tax debt. The values of assets can be taken from bank accounts, wages, Social Security benefits, and a variety of other sources.
Levies may remain in effect until the tax debt is paid in full or arrangements are made with the IRS by filing an appeal or Payment Agreement. As with any legal action taken by the IRS, taxpayers are given ample opportunity to challenge or avoid a levy before it becomes effective. It is important to consult a financial professional who understands IRS procedures in these matters.
What Assets The IRS Can Seize?
The IRS has the legal authority to seize a variety of assets in order to satisfy unpaid taxes or other debts. Some of the most common assets that the IRS can seize include:
Bank Accounts:
If you owe the IRS money, they may have the right to freeze or even seize your bank accounts! This means any funds stored in these accounts can be utilized as payment for unpaid tax debt.
Wages:
The IRS can garnish wages in order to collect unpaid taxes. This means that a certain percentage of the taxpayer’s salary will be withheld by the employer and sent to the IRS to satisfy the debt.
Property:
The IRS can seize property, including real estate and personal property, in order to satisfy unpaid taxes. This can include primary residences, vacation homes, rental properties, and even vehicles. In addition, the Internal Revenue Service can seize any property jointly held by more than one party if the taxpayer owns a portion large enough to cover their debt.
Investment Accounts:
The IRS can seize investment accounts, such as stocks, bonds, and mutual funds, to satisfy unpaid taxes or other debts.
It’s important to note that the IRS typically attempts to collect unpaid taxes through other means before resorting to asset seizure. They will usually send notices and make phone calls to try to collect the debt. Moreover, the Internal Revenue Service must respect specific regulations before taking away assets from a taxpayer and warning them of this situation.
What Assets The IRS Cannot Seize?
While the IRS may take action to extract a variety of assets, there are some that they cannot seize. These include:
Certain Retirement Accounts: Assets in certain retirement accounts, such as 401(k)s and IRAs, are generally protected from seizure by the IRS. These accounts are protected under federal law, and the IRS cannot seize the funds without a court order. However, certain distributions from these accounts may be subject to seizure if received after a levy has been issued.
Disability Benefits: Financial stability for those who are unable to work due to a disability is safeguarded by federal law and Social Security Disability Insurance (SSDI) and Supplemental Security Income (SSI). These government benefits are immune from the IRS, granting individuals peace of mind knowing that their well-being is secured.
Personal Property: Personal property, such as clothing, household goods, and tools of the trade, are generally protected from seizure by the IRS. These items are considered necessary for the taxpayer’s basic living expenses and are protected under federal law.
Certain Tools And Equipment: Tools and equipment that are necessary for the taxpayer’s trade or business may be protected from seizure by the IRS.
Public Benefits: Public benefits, such as unemployment insurance and workers’ compensation, are protected from seizure by the IRS.
It’s important to note that the IRS may seize assets exempt under federal law if state law allows it. Additionally, some state laws may provide additional protections for assets that are not protected under federal law. It’s advisable to check the state laws and seek professional help if you are facing this situation.
How You Can Avoid IRS Levy?
If the IRS is attempting to seize your belongings, there are various strategies you can try. Pick an approach that suits your financial situation best! Here are some options the IRS normally agrees with; just remember, in most of these cases filing any necessary tax returns is essential
Installment Agreement:
Establish an installment agreement with the IRS to pay your debt in monthly payments. This option must be requested on Form 9465 and should include details about the taxpayer’s financial situation, including income and expenses.
Offer In Compromise:
If the taxpayer cannot pay their taxes due to financial hardship, they can apply for an Offer in Compromise.
Currently Not Collectible:
If the taxpayer is unable to pay any amount of their tax debt, they may be able to qualify for Currently Not Collectible status. The IRS will suspend collection activity until the taxpayer’s financial situation improves.
Appeal:
In some cases, individuals can appeal a levy by contesting it with the IRS Office of Appeals.
It’s important to remember that tax debt does not have to be paid all at once. The IRS offers several payment options, and it’s best to consult a tax professional or financial advisor to determine which one is best for your situation. That way, you can ensure that your assets are protected from seizure!
Final Thought:
Dealing with an IRS levy is stressful and can be difficult to navigate. However, understanding the law and knowing your options is key in protecting yourself from asset seizure.
Before taking any action, consulting with a tax professional or financial advisor is essential to ensure you are aware of all potential consequences. With the right guidance, you can develop an appropriate plan and safeguard your assets that work for your specific monetary situation.