If you have just received a notice from the Internal Revenue Service (IRS) stating that they intend to enact a tax levy, you’re going to be alarmed. Your biggest questions will likely be “Can they actually do this?” and “What can they take?”
The answer to the first question is “Yes.” When you owe back taxes, the IRS can legally seek payment by seizing any property equal to the value of your tax debt.
This is an extreme measure that is only taken after repeated warnings fail to result in the money owed or an acceptable payment arrangement. You will receive letters first. Then the IRS will impose a tax lien on any real estate you own to prevent you from selling it before the tax debt is paid in full. If none of these steps enable it to recover your unpaid assets, the next stage of the collection process is to levy your assets.
Let’s take a closer look at the answer to the second question. What can the IRS seize once a tax levy takes effect?
Assets the IRS Can Seize
The IRS can seize practically any asset that has value/equity and can be liquidated into cash. This includes real estate, cars, jewelry, and even the investments you made to give yourself a comfortable retirement. These items are usually sold at a public auction before you have the chance to reclaim them, with the proceeds applied to your tax debt.
Some of the assets that can be seized and sold include:
- Motor vehicles such as cars, trucks, RVs, motorcycles, and boats
- Vacation homes
- Properties you own in addition to your primary reside
- Expensive jewelry
- Life insurance policies
- Savings accounts and retirement accounts
- Some types of government benefits
In general, any asset that is not essential to your survival and shelter (and that of your family) may be seized to pay the IRS what you owe.
With smaller tax debts (under $5,000), your assets may not be seized and sold, but the IRS will still try to collect by intercepting your federal income tax refunds and garnishing your wages. If it takes the latter option, it does not have to seek a court order first: the IRS can simply commence the garnishment process and even take a higher percentage of your income than other creditors are allowed (up to 65% of nonexempt earnings). The levy against your wages will only be released after your account is satisfied.
Types of income subject to garnishment include:
- Your employment paychecks
- Unemployment benefits
- Worker’s compensation payments
- Public assistance or welfare
- Social Security benefits
Assets the IRS Can NOT Seize
Although its powers of seizure are broad, the IRS cannot legally take claim to property and income sources that you need for your family’s survival. Property immune from seizure includes:
- Clothing and schoolbooks
- Work tools valued at or below $3520
- Personal effects that do not exceed $6,250 in value
- Furniture valued at or below $7720
- Any asset with no equitable value
- Your personal residence if you owe less than $5,000
Protecting Your Income and Assets
To prevent your property from being seized and wages garnished, your best option is to communicate with the IRS and explain your financial situation. You may be eligible for a payment arrangement that allows you to repay your tax debt in monthly installments or an Offer in Compromise, in which you settle your tax debt for less than the full amount you owe.
If your circumstances are unusual (e.g., you have incurred high medical bills due to illness), your debt may be forgiven. Tax debt forgiveness is not common but remains a possibility if you can prove to the IRS that you have been struggling with significant hardship.
Dealing with the IRS can be intimidating, which is why working with an experienced New Jersey tax attorney can ensure the best outcome for your circumstances. At Paladini Law, we will help you find the right solution for your tax debt, whether it be a payment plan, Offer in Compromise, or application for debt forgiveness.
Attorney Brad Paladini will give you peace of mind by working to remove any levy on your assets so that you don’t lose important property that you worked hard to acquire. For more information, please contact Paladini Law or call 201-381-4472.