TIGTA Reviews IRS Asset Seizure Procedures

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Asset seizure is that one thing many of my clients worry about, but few have had to experience first hand, thankfully. In my work as a tax attorney, I have noticed that the IRS does not like to use asset seizure as their “go to” collection tool. They will typically try everything else first, including letters, phone calls, field visits, liens, wage garnishments, and bank levies. However, after other efforts have been exhausted, if they are still unable to get the taxpayer to address their tax balance, the IRS has authority to seize any variety of assets, including vehicles, real property, and valuable personal property. These days property seizures are orchestrated by specially trained “PALS” employees (Property Appraisal and Liquidation Specialists) who coordinate with the revenue officer throughout each phase of the seizure and sale.

According to a recent report from the Treasury Inspector General for Tax Administration (TIGTA), the IRS needs to work out a few kinks in their asset seizure procedures. One of the problems that TIGTA identified occurs when a taxpayers’ personal property subsequently turns up inside or attached to the seized property. The IRS is supposed to use form 668-E to document these found items and they are to be released back to the taxpayer.  But the form is not consistently used and the items are not consistently returned, according to TIGTA. Although, to be fair, the IRS audited 44 seizure cases around the country and the only item that TIGTA identified as being unreturned to the taxpayer was the license plate in six of the eight vehicle seizures (because in those six states the license is issued to the owner of the vehicle, not the vehicle itself). Kind of a non-issue if you ask me. Yes, its important to follow procedures, but I can’t imagine anyone wanting their license plate back to forever remind them of the car that the IRS took from them.

Another procedural problem is that there is no IRM guidance for how to handle removal of taxpayer data from installed equipment in vehicles. Two examples of this would be factory installed garage door openers and GPS units. If taxpayer is not permitted to retrieve the personal data or ensure that the device has been scrubbed, this poses potential privacy concerns where a third party purchaser would have access to the taxpayer’s home address and maybe even access to the garage.

Very few taxpayers would ever even consider these seemingly minor concerns, until you find yourself at the mercy of PALS and an overzealous revenue officer. Still, I think it is useful to ponder some of the minute details of what goes on inside the IRS, even if only to give us some perspective and understanding. I like to imagine my revenue officer tied up in a complex asset seizure when I don’t get a call back for a couple weeks. It makes me feel like they’re not just ignoring me, and it makes me feel better knowing that my client’s situation could be much worse.

Will the IRS Take Your Home?

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The likelihood of the IRS resorting to collection of taxes through asset seizure — probably the most severe tax collection method — can only accurately be determined on a case-by-case basis*.  Certainly the IRS has authority to seize and sell assets in order to satisfy a tax debt, but it has to make sense for the Service to do so.  They want to be sure that the target asset (or assets) will raise enough money to cover all or most of what is owed.  They want to be sure that the profits from the seizure and sale will at least match the effort and preparation going into the procedure.

Furthermore, the IRS has internal guidelines dictating when and how they may proceed with asset seizures.  In other words, the IRS doesn’t normally go after granny’s little two bedroom farm house, but there are exceptions.  The IRS doesn’t like to boot people out of their primary residence; it’s not good public policy and not a great PR move.  And the IRS doesn’t normally resort to seizure at all if they can collect what is owed through other means.  Much more common is the wage garnishment, bank levy, and federal tax lien.  Of course the preferred method of tax collection is through voluntary payment, but not everybody pays their taxes so willingly.

But don’t be mistaken, the IRS can and will seize assets, primarily real property, vehicles, and valuable estate assets.  Local news outlets often advertise public auction dates.  The IRS also posts details about asset sales on their dedicated IRS auction website.  If you do attend an IRS auction, you should know that they don’t accept personal checks, and they don’t take American Express.

*You might argue that the most severe IRS collection tool is criminal prosecution and prison sentences; however, I don’t know if I would consider this a collection method, except to the extent that it encourages others to file and pay on time.

Foreign Accounts & Quiet Disclosures

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There is a general, overriding principle in the world of Federal Tax that goes something like this: if you voluntarily come forward to admit your prior tax shenanigans and get yourself back in the good graces of the IRS, there will be less negative consequences than if the IRS catches you trying to get away with it.

This principle holds true with respect to the reporting of foreign bank accounts.  Taxpayers who are caught hiding assets in foreign accounts are subject to criminal prosecution, and could very well face jail time.  But under the IRS voluntary amnesty programs, those who come forward and disclose their offshore assets are promised they won’t go to jail in exchange for payment of penalties that are based on a percentage of their account balances.

There are some who want to get back on the grid without having to pay hefty penalties.  They do this by making a so-called “quiet disclosure” of foreign assets; they report their foreign accounts without giving the government information about accounts held in previous years.  This type of disclosure sometimes tricks the IRS into believing the accounts are brand new.

According to a recent report by the Government Accountability Office (GAO), there may be more quiet disclosures happening around the nation than the IRS has the ability to identify.  The IRS is taking tips from GAO on how to detect more of these quiet disclosures.

Seizure of Assets II

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Even if the IRS has identified a “won’t pay” situation, there are a number of steps and procedures that must be followed in order to legally and successfully carry out an IRS seizure. Here are some of the pre-seizure considerations:

  1. Verification of the liability. This includes notifying the taxpayer of the liability and making sure he/she understands why the amount is owed.
  2. Consideration of alternative collection methods. Alternative collection methods include Installment Agreement, Offer in Compromise, Levy, etc. Technically the IRS does not need to attempt these methods, just consider them. However, it is standard practice to actually test them out to see if the liability can be satisfied first without resorting to seizure.
  3. Cost / Benefit analysis. The seizure process is an administrative nightmare; the revenue officer must consider the red tape, time investment, and costs of seizure to see if seizure is really in the government’s best interest.
  4. Prohibited seizures. There are a number of scenarios in which the Revenue Code prohibits seizure, such as a seizure conducted on the day the taxpayer has to appear in response to a summons, or seizure of property with insufficient equity to apply to the back tax liability.
IRM 5.10.1

Seizure of Assets

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Our tax relief clients often ask us if they should be worried about the IRS taking their home or other valuable assets.  We have to be careful about the way we answer this question because the IRS certainly has the power and authority to seize assets; they do it all the time.  However, we can often predict the likelihood of seizure based on the taxpayer’s individual circumstances.

For instance, seizures will generally not be conducted where taxpayers “will pay” or “can’t pay.”  The “will pay” situation is typically one in which the taxpayer is making preparations to pay, either by selling assets, obtaining a loan, or negotiating an installment agreement with the IRS.  If the taxpayer is “Currently Not Collectible” or is in the Offer in Compromise process, then these are considered “can’t pay” situations.

On the other hand, seizures will be considered where taxpayers “won’t pay.”  This is the category of taxpayers who repeatedly refuse to file tax returns and who keep piling up tax balances year after year.  It also includes those who rely on frivolous tax arguments or who refuse to cooperate with the IRS.  IRM 5.10.1.6.