The short answer is yes, the IRS does, indeed, have the legal right to seize a taxpayer’s personal residence if taxes are in arrears.
Before panicking, though, there is some comfort in knowing that residential property seizure is not a tactic the agency resorts to often. There are some criteria the IRS looks at before determining whether they even want your house. Remember, the property is only worth something to the government if it can be sold and converted to cash. For quick sale at auction, the agency typically values the seized property at 80% of the actual market value.
Before putting your home on the auction block, the taxpayer typically gets about 10 days to address the tax arrears and reclaim the property. If you have no equity in the house, there are laws in place that prevent the IRS from seizing the property. This is likely to protect the IRS from itself, so the agency doesn’t up with an inventory of low-value houses that won’t cover the tax debts owed.
The government has far more efficient and cost-effective ways to collect back taxes. Putting an individual or a family on the street isn’t in the government’s long-term interest. But bear in mind, even if you are able to avoid losing your property under these laws, it doesn’t mean you get out of your tax debt.
The IRS cannot seize your property if:
- The IRS missed seizing the property before the end of the collection period established on their taxpayer notification
- You have set up a signed installment plan to pay your arrears over time
- You and/or your family would face extreme financial hardship due to the loss of your home. Note: This will be determined by the IRS, not you.
- Releasing the seizure back to you prior to the auction sale will help you pay the taxes owed.
At every step of the process, the laws gives you the right to appeal the IRS decisions and actions taken, right up through the U.S. judicial system, if necessary. In most cases, working with a knowledgeable tax attorney will be the first and most important step you can take if you are under threat of property seizure.
