When it comes to collecting on a debt, the Internal Revenue Service has almost unlimited power. If you haven't paid your taxes, the IRS can garnish your wages, levy your bank account and even take your home in certain situations. The process can take some time, but if you do nothing you may very well lose your house for back taxes. The IRS does offer payment plans and other options for you to avoid losing your home.
Notice and Demand for Payment
The IRS cannot simply walk up and take your home as soon as you are late paying your taxes. Rather, the IRS must follow a sometimes lengthy process before it is legally entitled to your property, as spelled out in IRS Publication 594. The first step in the IRS process is to send you a Notice and Demand for Payment. This is your official courtesy notice that you owe a tax debt. At this stage, you can still settle your debt with the only consequence being fees and penalties.
Final Notice of Intent to Levy
If you receive an "Intent to Levy" notice, collections are only a step away. You have 30 days to respond to a notice of an IRS levy before you risk losing assets, including your home. If you want to contest the right of the IRS to levy your property, you can request a review of your case under the Collections Appeals Program, or you can ask for a Collection Due Process hearing before the Tax Court. If you lose your case hearings or do not respond to the final IRS notice, the next step is the Notice of Federal Tax Lien, which is a public notice to all creditors that the IRS has a lien against your property. A lien prevents you from selling your property before you have paid the IRS.
In some cases, the IRS will not pursue additional collection actions after the lien stage. However, the IRS does have the legal right to levy most of your property as well. A levy is a legal seizure of your property. In addition to seizing your home, the IRS can usually take up to 25 percent of your income through a process better known as wage garnishment. Your car and your bank accounts are also subject to IRS seizure. Older taxpayers could even lose their Social Security payments to the IRS. According to MSN Money, the IRS collected $57.6 billion in enforcement actions in 2010, including 3.6 million levies.
Although the IRS can seem adversarial through its impersonal notices, in essence it just wants to get paid, like any other creditor. If you make a good faith agreement to pay off at least some of your tax debt, the IRS is usually willing to work with you. If you can't pay your taxes in full right away, you can apply for an installment agreement in which you can pay what you owe over time. If you get approved for an installment agreement, it becomes illegal for the IRS to levy your property. If you simply do not have the means to pay your tax debt, even over time, you can make an "offer-in-compromise" to the IRS to try to reduce the amount that you owe.
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