The IRS and states can choose to pursue seizure of real property and personal property, including perishable goods, to satisfy an outstanding tax liability. With regard to the IRS, this typically occurs only after several attempts have been made by the Service to satisfy the liability by other means without a response or cooperation from the taxpayer.
There are several procedural requirements which must be met before the IRS can begin the process of a forced sale. Among them, a Notice of Federal Tax Lien must have been mailed to the taxpayer’s last known address, as well as, a Notice of Right to Collection Due Process hearing. Taxpayers may believe the IRS has not met its notice requirements in situations where notices were mailed to a taxpayers last known address without being received by the taxpayer. This is not the case. Taxpayers have a duty to file their returns each year, providing their current address as they do so. Further, the law holds that taxpayers have a duty to keep the IRS regularly informed of their contact information, not the other way around.
Notice of Seizure vs. Notice of Sale
Property seizure is imminent when a taxpayer receives a Notice of Seizure. Typically, within 60 days of receiving a Notice of Seizure a Notice of Sale will be sent to the taxpayer. A Notice of Sale must be personally served on an owner or possessor of the applicable property if the taxpayer is located in the territory. If an owner is not present, the notice may be affixed to the door of a taxpayer’s place of residence or place of business. If the taxpayer does not reside in the territory, a Notice of Sale may be sent via certified mail to a taxpayer’s last known address. Serving the Notice of Sale on any Power of Attorney on record is not enough to satisfy the IRS’s notice requirements.
The IRS must also provide a copy of the Notice of Sale by mail to all other parties having an interest in the property on record, regardless of priority. The Notice of Sale should provide a legal description of the property to be seized, the date, time and place of the sale to be held, the payment terms to redeem the property and stop the seizure, and information about whether multiple properties shall be grouped in a single sale.
The IRS must also publish the Notice of Sale in a single newspaper generally circulated within the county the seizure is to be made in not less than 10 days prior to the sale. This is the minimum requirement. The IRS may also choose to advertise the sale well beyond the immediate county to increase net proceeds.
Sale By Public Auction or Sealed Bid
The IRS must provide a Notice of Public Auction Sale or a Notice of Public Sale by Sealed Bid when either form of auction is contemplated. The IRS chooses the form of auction it believes will maximize the net proceeds of the sale. Sealed bid auctions are typically used when potential exists for taxpayer or third party resistance to the sale.
Seizure of Property Held by Joint Tenants and Tenants in Common
Occasionally seizure action is taken against real property held by Joint Tenants or Tenants in Common. This is typically the case when each Joint Tenant or Tenant in Common has a separate, unrelated liability owed to the IRS. The IRS holds a single sale, and each tenants’ interest is sold at once to a single purchaser at a single price.
If one tenant involved in such a sale redeems (by paying what is owed or taking some other action to stop the seizure), that tenant will retain their interest in the property and the purchaser will only receive deeds from the non-redeeming tenants. The purchaser normally receives a separate deed for each tenants’ interest.
Minimum Bid and Forced Sale Valuations
The IRS must establish a minimum bid to avoid selling a property at substantially less than the Forced Sale Value of the taxpayer’s interest in the property. The Forced Sale Value of a property is typically the Fair Market Value less 20%, not to exceed 25%. After calculating the Forced Sale Value, a revenue officer can further reduce the minimum bid amount to a Reduced Forced Sale Value which represents 20% less than the Forced Sale Value. The limitation on a minimum bid is the amount of the government’s interest (the amount of the tax liability) plus the costs of sale.
Release of Seized Property
There are situations where the IRS will release seized property. If you are facing a property seizure, a licensed tax professional can assist you in asserting one or many of the following claims to pursue a release on your behalf. Situations the IRS will consider include:
- The liability becomes unenforceable due to lapse of time, or the expiration of the collection statute without re-filing the Federal Tax Lien on said balance;
- Releasing the property will facilitate collection of the overriding tax liability;
- The taxpayer entered into an agreement to satisfy the liability through an Installment Agreement;
- Seizure creates an economic hardship due to the financial condition of the taxpayer;
- The fair market value of the property exceeds the liability and release of the seizure can be made without hindering collection of the liability.
The IRS will consider an Immediate Release if any of the following situations exist:
- Automatic Stay in bankruptcy is filed;
- A pending Installment Agreement, Offer in Compromise, or Innocent Spouse claim is filed;
- A showing that there is a lack of taxpayer equity in the seized property;
- A Collection Due Process Notice was not sent to the taxpayer or if a Collection Due Process hearing is pending.
A Release is also required if:
- Directed by the Appeals Department after the case has been reviewed through the Collection Appeal Process (“CAP”);
- Directed by a Group Manager of the IRS;
- If there is a showing that the property is being used as a residence;
- If the taxpayer files bankruptcy after seizure;
- If the government receives its interest in the property;
- If future collection potential is enhanced by release of the property.
Business Tax Liabilities and Time
Time is of the essence in circumstances involving a seizure of assets, particularly if you have a business tax liability. Failure to respond to the IRS, or to hire a tax professional to communicate with the IRS on your behalf in time to stop collections activity can result in the needless loss of property There is a lot that can be done to avoid such seizures.
With business tax liabilities the IRS or states are interested in receiving revenues from viable businesses. If a given business is falling behind on its sales taxes, payroll taxes, etc. without making a showing that they are prioritizing repayment, the agencies would much rather close the business and have it replaced with one that will pay its taxes timely. This is a bit different than the IRS and state approach to using seizure of assets to satisfy individual tax liabilities. Revenue agencies respond much more quickly and will begin to inventory business assets for auction and to take steps to close down a business by padlocking the door if they do not receive a response from a business having a tax liability. In most situations, a professional hired to negotiate with the IRS can immediately communicate with the state or IRS to buy you time and to present alternatives to seizing assets. Most alternatives to property seizure are highly preferable and bearable so long as a taxpayer has their mind set on resolving their problem for good. If you have received notification from an agency that they intend to seize property, whether it be personal or business property, contact The Law Office of Elizabeth Gonsalves right away. We can assist you immediately. If you have not received such a notice but are fearful one shall be coming soon, do not wait or continue to procrastinate. Procrastination leads to emergency financial situations that can be very traumatic and have lasting effects. We are here to help, contact us to get started and we will communicate with the agency for you. Call us at (855) 842-4442.