Finally, we turn to the most serious of actions by IRS collections: Property seizures (including levies) and lawsuits filed against the taxpayer.
After the Notice of Intent to Levy is sent out notifying the taxpayer of the government’s intent to seize property; any and all taxpayer property is subject to seizure (barring a few specially exempted items). The IRS will generally levy property that is easily accessible to the government and requires few resources to seize. The most readily accessible property comes in the form of bank accounts and wages due to the taxpayer. Because of past tax returns filed by the taxpayer and third party filings, the IRS already has a treasure trove of information on where they can find property that is readily sizable including bank account information (provided by the bank or by the taxpayer who elects direct deposit) and wage information (provided by the filing of your W2 or 1099s).
The levy is also usually continuous until the liability is 1) paid in full by the taxpayer or 2) a suitable alternative is agreed to by the government. In the case of a wage garnishment, the employer is required to hold the funds being levied and remit them directly to the IRS. With a bank account levy, the bank must hold the funds in place for a period of time (generally 21 days) to give the taxpayer a chance to find a compromise with the government. After that period expires, the bank surrenders possession of those funds to the government. In cases where a third party refuses to comply with an instruction by the IRS, the government may send a representative to forcibly seize that property. Tangible property that is seized by the government, such as a car, can be sold at an administrative government auction in order to satisfy the taxpayer’s liability. In these cases, the government is allowed to deduct their seizure and sale costs before applying the balance received in the sale to the taxpayer’s liability.
In extreme cases or where administrative enforcement actions fail against the taxpayer, the government may seek redress from the courts in order to recover payment for past due taxes. All lawsuits against the taxpayer are initiated in federal court, usually in the jurisdiction where the taxpayer resides. Since IRS employees do not have the authority to initiate lawsuits against taxpayers, these cases are referred to the Department of Justice - Tax Division for review and subsequent action. It is important to keep in mind that these suits against the taxpayer are civil actions and not criminal prosecutions for crimes committed against the government. However, both types of cases are usually eventually turned over to the local United States Attorney’s Office, who represents the government in District Court.
There are two main types of civil suits that are brought against taxpayers: suits to reduce to a judgment and suits to foreclose upon a lien. First, the government’s primary objective in seeking to reduce a suit to a judgment is to extend the period of time the government has to collect on a liability beyond the traditional ten (10) year administrative collection statute. Suits to reduce to a judgment are not common, but the government will potentially file one if all remedies at the IRS administrative levels have been exercised and there is a reason to believe that the taxpayer has a reasonable collection potential (RCP) in the future. In contrast, a suit to foreclose is authorized under Internal Revenue Code Section 7403. This is where the government is able to locate specific property that could satisfy some or all of the outstanding liability. Most commonly, the government will go after houses or other real property because these are easiest for the government to seize and sell; however, they are not limited in the types of property they can seek, except by statue.
I hope this article series has been helpful in explaining the actions and personnel involved in IRS collection activities. If you do owe a balance due to the government, I would recommend taking care of it as early as possible in the process. As you continue down the chain of adverse collection activity, your situation will become increasingly worse. For any follow up questions that you may have, or any other further assistance, please contact me using the contact information on this website.
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