Picture this scenario: you receive a notification from the Internal Revenue Service (IRS) informing you that you owe a considerable amount of tax debt. You frantically search for ways to pay off the amount but to no avail. Suddenly, a thought crosses your mind: can the IRS take your car away as a form of repayment? As alarming as it sounds, it's a possibility that many taxpayers face when they can't pay up. In this blog post, we'll take a deeper look at the circumstances under which the IRS can take your car and advise you on what to do if you find yourself in this predicament.
1. IRS seizure of assets as a last resort
The power of the IRS to seize assets is formidable, but it is not their first choice. The IRS usually tries other means to recoup unpaid taxes before resorting to an asset seizure. However, if all else fails, they can legally seize any asset that can be sold for money or has equity. This could include bank accounts, retirement accounts, and personal property, including your car. It's recommended to seek legal help if your assets are being seized since it can be a complicated and emotional process. While the IRS does have rules in place that govern what assets can and should be seized, the best way to protect your assets from seizure is to file your taxes and pay everything on time. If you cannot afford to pay the full amount of taxes you owe, you can set up a payment agreement with them. It's crucial to communicate with the IRS honestly about your situation, as hiding anything will only make matters worse. Additionally, learning about Offers in Compromise may also be an option if you can't pay your entire tax debt. Remember, the IRS only wants to clear your tax debt, not cause you further economic hardship. [1]
2. Equity in owned assets and IRS seizure
When it comes to tax debt, the IRS has the authority to seize assets to satisfy outstanding balances, including vehicles. However, the IRS typically only seizes assets from taxpayers who owe significant amounts of money. Additionally, the IRS will generally try other collection methods, such as wage garnishment or intercepting tax refunds, before resorting to asset seizure.
If the IRS does decide to seize your car or other assets, it must follow the proper legal process outlined in the Taxpayer Bill of Rights. This includes providing a 30-day notice and allowing the taxpayer the right to appeal the decision.
It's important to note that the IRS cannot seize anything essential to your survival or your family's survival. Certain personal possessions are usually exempt from seizure, such as work tools worth $3,520 or less, personal effects valued at no more than $6,250, and your home if you owe less than $5,000.
To protect your assets from the IRS, it's best to file and pay your taxes on time. If you are unable to pay the full amount owed, you can set up a payment agreement with the IRS. It's also crucial to communicate with the IRS and be honest about your financial situation.
Although the IRS has the power to take your car or other property, they usually only do so when there is a large outstanding tax debt. Seizure is not their initial choice. It's essential to understand your rights as a taxpayer and your options for resolving tax debt with the IRS. [4]
3. Taxpayer rights under the Taxpayer Bill of Rights
Taxpayers have rights under the Taxpayer Bill of Rights. It means that they have the right to receive clear explanations of the tax laws and IRS procedures in all forms, instructions, publications, notices, and correspondence. Taxpayers have the right to be treated with respect and receive professional help when dealing with the IRS. They can also speak to a supervisor if they're unsatisfied with the service.
Taxpayers have the right to pay only the proper amount of tax, including penalties and interest. They can expect the IRS to correctly apply for their payments. They also have the right to challenge the IRS’s position and be heard by raising objections and providing additional documentation. Taxpayers can appeal the decisions made by the IRS and choose a representative to help them deal with the IRS.
The tax system should also consider factors that might affect taxpayers' underlying liabilities, ability to pay, or ability to provide timely information. Taxpayers have the right to expect that if anyone, such as return preparers or employees, misuses or improperly discloses our tax return information, they will face appropriate consequences. We have a right to trust that the sensitive details we provide are handled with discretion and integrity. Breaking this trust cannot be ignored, as it undermines our faith in the tax system and could harm our financial safety. Punishment is necessary. Therefore, the IRS must establish strong measures to penalize those who fail to respect the privacy of taxpayer information when dealing with taxes.[5][6]
4. 30-day notice and right to appeal
If you owe taxes to the IRS and are concerned about them taking your car, don't worry. The IRS will inform you beforehand and offer you the chance to challenge the decision. The IRS considers seizing assets as a last resort and will only do so if there is equity in what you own. Typically, the IRS only seizes assets with around 20% equity that they can receive from the sale of the item. You also have the right to representation by an attorney or CPA and the right to appeal any decision made by the IRS. It's crucial to respond to any correspondence from the IRS promptly or have your representative respond to you. It's important to get professional help if your car is at risk of being seized due to IRS debt. This will help protect your assets and resolve the debt.[8]
5. Code preventing economic hardship
If you owe the IRS taxes and are struggling to pay your basic living expenses, you might qualify for the Currently Not Collectible (CNC) status. This means the IRS won't try to collect from you by levying your assets and income. However, they will still assess interest and penalties on your account and may keep your refunds and apply them to your debt. To qualify for CNC status, the IRS might request that you file any tax returns that you haven't submitted yet. They may also ask for your financial information to review your income and expenses. The IRS can come after you for unpaid taxes for up to ten years after the initial assessment. However, they will keep adding interest and penalties to the amount owed even if they stop trying to collect it. It's important to consider other payment options within your means before asking the IRS to place your account in CNC status. If you meet the requirements, you might be able to have your return prepared for free at a Volunteer Income Tax Assistance (VITA) site. [10]
6. Importance of responding to IRS correspondence
It's important to respond promptly to any IRS correspondence. Failure to respond can lead to significant penalties and interest on any outstanding balances. The IRS typically sends multiple letters before resorting to more severe measures like vehicle seizure. Most communication from the IRS is conducted through regular mail, though in-person visits may occur in cases of non-compliance. IRS officials who visit on compliance issues, such as revenue officers or agents, will conduct interviews and work with taxpayers to resolve their tax issues. It's crucial to remember that IRS employees will always carry proper identification, and taxpayers have the right to view those credentials. If someone suspects that an individual is impersonating an IRS official, there are several options to report the incident. This is especially important if the person has not had any known tax issues before. It is essential to take action as soon as possible to prevent any fraudulent activity from occurring. If you're worried about a tax scam, contact the IRS or report it to TIGTA right away. This can help you feel better and stop more trouble. Protecting oneself from identity theft and fraud should always be a top priority. It's essential to read any IRS notice or letter carefully and to follow the provided instructions for responding. [11][12]
7. Mechanics of IRS vehicle seizure
The mechanics of an IRS vehicle seizure can be complex and emotional, but there are steps you can take to protect yourself against it. First, it's important to understand that the IRS can seize any asset that has equity, including your car. The government may seize assets from individuals who fail to pay taxes. However, they will only do so if other collection methods don't work and if the assets have at least 20% equity. In addition, they have to give you at least 30 days notice of their intent to seize your asset, and you have the right to appeal any decision made by the IRS. The government agency responsible for asset seizures has strict guidelines to prevent causing economic hardship. Consequently, they do not take lightly legal seizures of assets like cars that are critical to the owner's daily life. To prevent the IRS from seizing your assets, file and pay your taxes on time, reach a payment agreement if you can't afford to pay the entire amount, and don't neglect any notices from the agency. It's crucial to get legal assistance if your car is at risk of being seized. A legal expert can offer you guidance through the process and protect your assets effectively. So, don't hesitate to seek representation from a qualified professional.
8. When the IRS seizes substantial debts
When the IRS seizes substantial debts, it can legally take practically any asset that has value and can be liquidated into cash, including your car. Before taking your vehicle, the IRS will try to collect the money you owe by taking some of your salary or taking your tax refund. However, if the debt is substantial, the IRS can use progressively serious methods to collect your tax debt before seizing your vehicle. The IRS will begin by informing you of your tax debt and allowing you to pay it. When other methods of collection have been exhausted, the IRS will file a federal tax lien against you. Once the IRS has the legal right to seize assets by use of a levy, it can legally seize your vehicle. A typical IRS seizure usually involves local law enforcement accompanying IRS Revenue Officers. The Revenue Officers will present their credentials and the order that states they have a right to take the property from you. The IRS contractors, such as towing companies, will then secure the asset and remove it from the property for storage at an IRS facility.
The IRS doesn't seize assets without warning, so if you're behind on your taxes, you'll usually receive numerous notices and letters from the IRS before they escalate their collection efforts. Once the IRS has seized your vehicle, they will move it to a storage facility where they'll give you one last attempt to settle the debt and reclaim the asset. Simultaneously, the IRS will post a public notice that the item is available for purchase from the US Government, usually at an auction. Generally speaking, the vehicle will be sold off relatively quickly, and the money raised from the sale will be applied to the tax debt that you owe to the IRS.
Despite the high tension involved in an IRS vehicle seizure and auction, the IRS follows a standard process to seize and sell off your assets. Therefore, the best way to avoid having the IRS seize your car is to file your taxes and pay what you owe on time each year. In case you cannot pay off your tax debt, you should communicate with the IRS and be honest about your financial situation. You could be eligible for a payment arrangement that would allow you to pay off your debt in monthly payments. If your circumstances are unusual, such as high medical bills due to illness, your debt may be forgiven. Tax debt forgiveness is rare, but it is still a possibility. However, working with an experienced tax attorney can ensure the best outcome for your circumstances when dealing with the IRS. [16]
9. Typical process of IRS vehicle seizure
The process of the IRS seizing a vehicle can be intimidating, but it's important to understand how it works. The IRS doesn't seize cars or other assets as a first resort, but rather as a last option when all other collection efforts have failed. Before seizing your vehicle, the IRS will first try to notify you of your tax debt and allow you to pay it. They will then file a federal tax lien against you and attempt to collect in other ways, such as garnishing your income or seizing your tax refund. If these methods are unsuccessful or the debt is substantial, the IRS will use its power to seize assets, including vehicles.
During a typical IRS seizure, local law enforcement officers will accompany IRS Revenue Officers to ensure the officers' safety and authority to take the property. Revenue Officers will present their credentials and a legal order allowing them to take the property. Contractors, such as towing companies, will then secure and remove the asset for storage at an IRS facility. The vehicle is then moved to a storage facility where the taxpayer is usually given one last attempt to settle the debt and reclaim the asset. However, the IRS will simultaneously post a public notice that the vehicle is available for purchase from the US government.
Generally, the vehicle will be sold off relatively quickly, usually at an auction that is open to the public. The money from the sale is then applied to the tax debt that you owe to the IRS. The goal of seizing assets is to satisfy the debt as quickly as possible since you failed to pay it off yourself. The IRS will only seize your vehicle if there is equity in what you own. Generally, they will hesitate to take property or assets unless there is about 20% equity that they can receive from the sale of your item.
It's essential to keep in mind that the IRS doesn't want to take your property or assets and will only do so as a last resort. If you find yourself in a situation where your car may be levied, it's highly important to respond to correspondence received by the IRS or take it to your representative to have them respond for you. You may be eligible for a payment arrangement, which would allow you to pay off your debt in monthly payments, taking into account how much you pay for rent, utilities, and other expenses. In extraordinary situations, your tax debt could be forgiven. Still, it's rare, and the IRS wants to work out any back tax issues as much as you do.
10. Sale of seized vehicles to satisfy the tax debt
The is authorized by law to seize your property to satisfy a tax debt. This includes your vehicle as well. In 2018 and 2019, the IRS seized a total of 275 and 228 assets, respectively. However, before seizing your vehicle, the IRS will use progressively serious methods to attempt to collect your tax debt. The IRS will first inform you of your tax debt and give you an opportunity to pay it. If they are unable to collect from you after sending numerous notices, they will proceed to file a federal tax lien against you. The Notice of Federal Tax Lien will alert creditors that the government has a legal right to your property. Once all other methods of collection have been exhausted, the IRS will use its power to seize assets by use of a levy.
A typical IRS vehicle seizure involves local law enforcement accompanying IRS Revenue Officers so they are not interfered with nor attacked. The Revenue Officers will present their credentials to the taxpayer, as well as the order (typically from a judge) that states they have the right to take the property. The IRS contractors (e.g., towing companies) will then secure the asset and remove it from the property for storage at an IRS facility. The seized vehicle is then moved to a storage facility and the taxpayer is usually given one last attempt to settle the debt and reclaim the asset. Simultaneously, the IRS posts public notice that the item is available for purchase from the US Government. The vehicle will be sold off relatively quickly, usually at an auction that is open to the public. The money raised from the sale is then applied to the tax debt that you owe to the IRS. The goal of seizing assets is to satisfy the debt as quickly as possible since the taxpayer failed to pay it off.
If you cannot fulfill your financial obligations to the IRS, communicate with them and be honest about your financial situation. You could be eligible for a payment arrangement, which would allow you to pay off your debt in monthly payments. The IRS will calculate your monthly payment for a debt based on your living expenses, such as rent and utilities, as well as the value of your assets. In extraordinary situations, your tax debt could be forgiven; however, forgiving a tax debt is a rare occurrence, and it is important to seek expert advice. The best way to avoid having your assets seized by the IRS is to file your taxes and pay what you owe on time each year. [19]