The taxman eventually gets his due. If you do not pay your tax bill, plus any interest and penalty fees added to your initial tax liability, then the IRS takes collective action. You have plenty of opportunities to stop it. First, they will request you pay. Then, they will put a lien on your property. Finally, they will seize property that is not exempt and attempt to sell it to pay off the outstanding debt. Between each step, you have 30 days to appeal or take action.
Once you find yourself with a levy against your property, you face losing your house or your car. For many people, this becomes more than just an inconvenience. You could end up homeless when the IRS takes your house. Without your car, you might not be able to get to and from work, so you might lose your job and find yourself in even worse circumstances. So, what are you to do?
Luckily, there are some easy — and legal — ways to save a certain property from becoming the property of the IRS. The following are the three best options.
Pay Your Taxes or Apply for Tax Relief
The simplest solution is to pay your taxes. This might require you to take out a loan or sell some of your property. Although this might not save your house or car, it does put you in the control seat. You might be able to sell it for a higher value than the IRS could. You can choose which property to sell, and you might even expedite the process, making it that much sooner that you have the extra funds to buy a new house or car. You might also find that you end up with more of the excess funds than if the IRS were the ones to sell it.
If you do take out a loan, you want to make sure that you choose one with good terms from a reputable lender. You do not want to take out a high-risk loan that you struggle to pay off, only to find yourself losing your house or car to someone else.
If there is no way you can pay off your tax debt, and you do not want to sell your property, then consider negotiating one of the tax relief settlements. The IRS has a few options:
- Installment Agreement
- Penalty Abatement
- Offer in Compromise
- Innocent Spouse Relief
- Currently Not Collectible
With these, you can reduce how much you owe or break it down into manageable chunks to pay over time. Once you apply for one, the collection process pauses. If the IRS approves your application, then the collection action, including potential seizure of your house or car, ends, as long as you remain in compliance with the terms. However, as soon as you miss a payment or otherwise break the terms, then the IRS can seize your property.
Request to Designate the Property as Exempt
If you do not wish to actually solve your tax debt but you want to protect your house or car, then you can apply to designate it as exempt from the levy. One way to do this is to demonstrate to the IRS that the levy would be uneconomical. This means that the costs incurred by the levy and sale would be more than the value of the item. The IRS refers to this as a no-equity seizure, and they do not conduct these types of seizures. For example, if the IRS wants to seize an automobile worth $500 to help pay off your $20,000 debt, you could demonstrate that the cost for them to tow it and put it on auction would be much more than the $500, leaving the IRS with nothing to apply towards your debt. This is not beneficial to them, so they will choose to collect the money another way.
Another valid reason for designating property exempt from a levy is if you need it to make money. This exemption is more common for cars or other vehicles. If losing your car interferes with your ability to work, then this reduces your ability to eventually pay down the debt. The IRS will deem this asset as exempt so you can continue to use it to make an income, as long as you can prove that there is not another feasible option.
You can legally protect your assets from the IRS through transferring the ownership. However, there are a few caveats to this. First, you must transfer ownership prior to the IRS issuing the levy. Once the levy is applied, the IRS can still seize it, even if someone else now owns it. Transferring ownership tends to simply slow down the seizure, which might be beneficial if you just need time to collect the funds to pay off your debt. The IRS can also seize the property even under the new owner’s hand, which is known as a nominee. If you handle this incorrectly, you might even find that you are charged with criminal intent.
If you add an owner, or already joint-own a property with someone (other than a spouse who shares your tax debt), then it might protect the asset. If the IRS seizes and sells property owned by more than one person, the agency must fully compensate the other owners for their share. Many times, the IRS does not see the value in selling the shared property if their cut is not sufficient to pay for the expenses and your tax debt. Therefore, you might find that you joint ownership does protect an asset, so it might be worth finding someone to sell part of the property to. It is important to recognize that this only applies if the joint owners actually paid in full for their part of the property, so you cannot simply give part of the property away.
There are some legal ways that you can protect your property from seizure from the IRS. Before selling your property or otherwise trying to hide assets, be sure to talk with a tax professional or lawyer to ensure that you do not do something illegal. You also want to discuss your full options for protecting your home or car so that you choose the right path for you.
The tax professionals at Fidelity Tax Relief are ready to discuss your situation and find the right way to get the IRS off your back so you can handle your tax debt and be free once more. Call us today at 877-372-2520.