If you owe back taxes to the IRS, you may have wondered if the IRS can take your home.
The short answer is yes, the IRS can seize and sell a home to collect unpaid taxes, but strict protections apply to a primary residence, and several collection steps generally must happen first.
If after reading this blog you still have questions about resolving your tax debt and protecting your property contact PJN Tax Solutions.
A Tax Lien Is Not the Same as Losing Your Home
One of the most important distinctions to understand is the difference between a federal tax lien and an IRS levy.
A federal tax lien is the government's legal claim against your property when you have an unpaid tax debt. A levy, on the other hand, is an actual legal seizure of property to satisfy the debt.
If the IRS files a Notice of Federal Tax Lien, that does not mean someone is arriving tomorrow to take your house. However, the lien can create problems when you attempt to sell or refinance your property, and it is a warning that your tax problem needs attention.
Can the IRS Really Seize Your Home?
The IRS can seize real estate, including a home, under its collection authority. But your principal residence receives additional protection.
Before the IRS can seize your primary residence, it generally must obtain approval from a federal court. The government must also demonstrate that certain legal requirements have been satisfied, including consideration of reasonable alternatives for collecting the debt.
In most collection cases, the IRS must take several steps before levying property. Generally, the IRS will assess the tax, send you a bill, and give you an opportunity to pay or make arrangements. If the debt remains unresolved, the IRS will normally issue a Final Notice of Intent to Levy and inform you of your right to a hearing before proceeding with a levy.
That is why IRS notices should never be ignored.
What Happens If the IRS Seizes Property?
If the IRS does seize real estate, it can sell its interest in the property and apply the proceeds toward the tax debt.
Before a sale, the IRS calculates a minimum bid price and gives the taxpayer an opportunity to challenge its determination of the property's fair market value. The IRS then provides notice of the sale and generally waits at least 10 days after public notice before conducting it. Sale proceeds are first used for seizure and sale costs and then applied toward the outstanding tax liability.
The good news is that many tax problems can be addressed long before reaching this stage.
What Can You Do If You Cannot Pay the IRS?
Not being able to pay your entire tax bill today does not mean you should ignore it.
Depending on your financial circumstances and the specifics of your tax debt, potential resolution strategies may include an installment agreement, an Offer in Compromise, or Currently Not Collectible status if paying the IRS would create financial hardship.
There may also be circumstances where penalties can be reduced, or other collection alternatives can be explored.
The right strategy depends on factors such as how much you owe, your income, expenses, assets, tax compliance, and the type and age of the tax debt.
Have You Received a Final Notice of Intent to Levy?
If you have received an IRS Final Notice of Intent to Levy or another serious collection notice, time may be especially important.
Taxpayers generally have the right to request a Collection Due Process hearing within a specific period after receiving certain levy notices. This can provide an opportunity to challenge the proposed collection action or discuss collection alternatives.
Waiting until the IRS has already levied a bank account, garnished wages, or begun pursuing other assets can make resolving the situation more difficult.
Don't Wait Until Your Home Is at Risk
IRS tax debt rarely becomes easier by ignoring it. Penalties and interest can continue to accumulate, and unresolved accounts may progress further through the collection process.
If you owe back taxes or have received threatening IRS notices, contact PJN Tax Solutions. We'll review your tax situation, help you understand what the IRS can and cannot do, and discuss the tax resolution options that may be available to you.
The sooner you address the problem, the more time you may have to protect your finances, your property, and your peace of mind.