The power of the Internal Revenue Service has scared many people when they fall behind on paying their tax debt. The IRS can take a variety of actions when you don’t pay the amount you owe on your taxes. Your bank account can be levied. Your wages may be garnished. But can the IRS take your home? That’s a complex fear, and you need to know what to do to prevent losing your home when you owe the IRS a lot of money.
TL;DR (Too Long; Didn't Read)
If you don’t pay your taxes, you technically can lose your house and other assets. However, if you communicate with the IRS and diligently work toward paying off your tax debt, there's a good chance you won't lose your home.
Initial Notices and Warning Signs
You can’t just go from owing the IRS to no longer owning your home without any notice. You have established rights that are detailed in the IRS publication called "Your Rights as a Taxpayer," which can’t be violated. Among those rights are the right to be informed, the right to challenge the IRS’s position and be heard, the right to appeal an IRS decision in an independent forum and the right to a fair and just tax system.
The process that the IRS follows to collect a tax debt includes first sending at least two bills. If you don’t pay the bill or contact the IRS to express your disagreement, the IRS can then begin collection actions. Even then, that doesn’t mean that they will immediately try to get your home. The key is to communicate with the IRS. Explain your circumstances, and they may work with you to establish a payment plan that you can afford. When possible, always back up requests with detailed information about your circumstances and finances with documentation to verify your claims.
Notify the IRS of Bankruptcy
Once debt begins to accumulate, many people file for bankruptcy. If you are going to file bankruptcy, the IRS requests that you notify them immediately. Although filing bankruptcy won’t erase your tax debt, the IRS may temporarily stop collection efforts. That can give you time to deal with the bankruptcy and associated problems before you need to turn your attention to handling your tax debt. Provide the IRS with the location of the court, your bankruptcy date, the type of bankruptcy you’re filing and your bankruptcy number. The more information you provide, the better.
Benefits of an IRS Settlement
If you don’t see a way of paying your tax debt, you may be able to get an IRS settlement without having your home threatened. Not everyone will qualify for a settlement, but the IRS may allow you to settle your debt for less than you originally owed if there are extenuating circumstances for them to consider. If an IRS settlement is negotiated and approved, you won’t have to worry about losing your home or dealing with further collection activity if you stick to the settlement agreement. It will empower you to avoid garnishments and liens altogether.
Seek Professional Advice
If you don’t have a large income, you may qualify for assistance from the Taxpayer Advocate Service, which is considered your voice at the IRS. It helps people resolve tax problems with the IRS and offers suggestions to help you avoid future issues with paying your taxes.
If you can afford other professional help, seek the advice of a tax attorney. An experienced attorney will be able to advise you on the latest laws and assess your unique situation to determine the best course of action to prevent a tax lien against your home. Always be forthcoming with information and prepare to bring along recent tax records.
You will likely see several local tax settlement firms advertising their services to help avoid problems with the IRS. However, don't fall for those tax settlement commercials. Not all tax settlement firms are reputable, so do your due diligence and always check a company’s history and references before trusting them with sensitive information about your taxes.
Handling an Intent to Levy
If the IRS sends you an “Intent to Levy” notice, that means collections may be right around the corner. The IRS sends this notice before they make any attempt to seize your property. As a taxpayer, you have 30 days from the date of the notice to pay your taxes, make other arrangements or request a hearing. If you don’t respond and don’t make the payment, the IRS can proceed with seizing your assets, including your house.
The most common seizure is a levy on your bank account, not the seizure of your home. IRS seized property is usually not in the form of houses. The IRS seized houses, cars or equipment less than 350 times in 2017, whereas there were more than 590,000 levies to employers and banks. The seizure of property is saved for exceptional circumstances. Property seizure is more likely to occur to individuals who commit tax fraud or try to hide their assets from the IRS.
Realities of an IRS Levy
Sometimes the IRS will only put a levy on your bank accounts, rather than going after your home and other personal property. Levies may be issued to banks and employers, and the IRS may then garnish your wages. The money that is seized from your wages or bank account is then applied to your tax debt. So, for example, if you had enough money in your bank account to cover your tax debt and related fees, that would be the end of the collection.
Although it is rare, the IRS asset seizure may come in the form of a lien on your home. Once a tax lien is in place against your property, you won’t be able to sell it because it will encumber the title of your house. Before selling the property, you would need to apply for a lien release that isn’t likely to be received unless you pay your tax debt. The IRS has the right to foreclose on your property during the 10-year period where it has a tax lien against it. On the other hand, if you pay off your tax debt in full, the IRS will then give you a Certificate of Lien Release and remove the lien. This should occur within 30 days of paying off the tax debt.
Peace of Mind with Finances
Also, keep in mind that owing past due taxes to the IRS doesn't have to be a burden. After all, the sooner you deal with the debt you owe and communicate with the IRS about settling it, the sooner you won’t have the fears of losing your home and other assets hanging over your head. The IRS ultimately is likely to work with you since it wants to be paid and knows that not everyone can pay their taxes in one lump sum. A payment plan can help you avoid any further collection efforts, and if you get behind on that plan, stay in contact with the IRS about your financial situation. There is no reason that things need to escalate to the point where you are faced with losing your home.
Robin Raven is an experienced journalist and author. She has a BFA in writing from the School of Visual Arts and loves to write about personal finance. She has contributed to USAToday.com, The Huffington Post, The Nest, Grok Nation, and many other publications.