When you have an outstanding federal tax debt, the IRS will seize your assets to acquire the money owed to them. Even if someone who does not owe money jointly owns an asset, the IRS can still seize it. However, the other owner is entitled to compensation for the loss of the asset. Although most assets are fair game, there are certain items that are protected by law from being taken. It is important that you know what is allowed to be seized and what is not so that you do not end up a victim of an unlawful seizure.
Assets Required for Living
The list of exempt assets is very small and generally only includes items that are necessary for living. Any of the items owned by the taxpayers and their dependents are covered by the exemption. This typically includes:
- Clothing other than luxury items or those worth a significant amount of money
- School supplies and tools of trade up to a maximum value of $3,860
- Books necessary for school or business
- Furniture, personal effects, food, fuel, and other necessary provisions up to a maximum value of $7,700. This also includes livestock for those who are farmers
- Undelivered mail (a vague inclusion that does not have a definite meaning)
Income and Benefits
Most income is fair game for seizure by the IRS, other than an exempt amount based on the cost of living. But there are certain benefits and sources of income that are completely exempt:
- Unemployment benefits (only 85 percent)
- Benefits that come from Railroad Retirement Act and Congressional Medal of Honor
- ERISA retirement plans have some exceptions, while other pension, retirement accounts, and retirement plans can be seized
- Benefits from Workers’ Compensation
- Child support that has been court-ordered
- Some disability payments may be exempt, so you may need to verify if yours is included
- Welfare, SSI, and most other public assistant payments
Items in the Gray Area
Although the IRS can lawfully seize any other assets or sources of income, there are a few items that are typically left for last or that can easily be approved for exemption. The IRS typically leaves the property in which you live and any retirement plans as a last resort when collecting the tax liability. Primary residences, whether it is a house, boat, mobile home, or other types of property, maybe seized in some situations. When it is, the IRS needs a court order, unlike when they place a lien or levy on other assets.
Although vehicles are usually seized, they are generally the easiest for which to apply for an exemption. If your automobile is not a high luxury vehicle and you need it to get to and from school and/or work, then you will most likely be approved when requesting an exemption. However, if your family has more than one vehicle, you may only be able to argue that one is a necessity and will have to give up another.
If you find yourself with a notice of lien or levy, then you need to take action right away. Even though you will be left with the most basic items for living, you will find yourself facing a significantly altered lifestyle that may lead to more financial problems in the future. The tax professionals at Fidelity Tax Relief can help you to negotiate a settlement with the IRS so that you do not have to lose anything. Call us at 877-372-2520 today to see how we can help you.