How to Protect Yourself From IRS Seizing Assets or Money

How to Protect Against IRS Seizures of Your Property

How to Protect Against IRS Seizures of Your Property

When a U.S. taxpayer owes a debt to the Internal Revenue Service, there are various steps that the IRS can take to satisfy the penalty or tax that is owed. One method the IRS can use to obtain either money or property sufficient to satisfy the debt is to file a Notice of Federal Tax Lien and ultimately try to force the sale of the property. Alternatively, the IRS may seek to levy the Taxpayer’s wages, bank account, or other income stream. Whether or not the taxpayer lives in the United States or abroad and whether or not the assets are in the United States or overseas the IRS can try to levy or lien the assets. The IRS levy and lien are two of the main ways that the government facilitates the seizure of property, but there are other ways the IRS can do it as well such as a jeopardy assessment. Let’s look at some of the types of seizures the IRS can pursue against taxpayers and then what taxpayers can do to protect themselves against the seizure of property.

IRS Levy

In some situations, the Internal Revenue Service will have the opportunity to levy a taxpayer’s income or bank accounts. In this type of situation, the IRS will send notices of intent to levy on forms such as an IRS CP504 Notice. Ultimately, the taxpayer would receive a Letter 1058 or similar letting me know that the IRS intends to levy the taxpayer’s income or account. If successful, then the IRS can take the money directly from the Taxpayer, and over the Taxpayer’s objection. For example, the IRS may place a levy on a bank account so that if there is an amount due then the IRS can take the money out of the account directly to satisfy or partially satisfy any outstanding liability.

Notice of Federal Tax Lien

Another method the IRS has to obtain payment for outstanding liabilities is to put a notice of lien on the taxpayer, by filing a Notice of Federal Tax Lien (NTFL). In this type of situation, the taxpayer will receive notices that there is a debt due and outstanding, and that payment should be made. If the taxpayer does not make payment, then instead (or in addition to) levying a bank account or income stream, the IRS may place a notice of lien on the property – which puts the world on notice that the taxpayer owes a debt. Technically, the IRS can take steps to force the sale of the property — but that is not the common action that the IRS takes.

Jeopardy Assessment/Levy

When the IRS believes the taxpayer may potentially go on the run or try to dispose of the assets quickly they can try to take more extreme measures, such as a jeopardy assessment levy in which the IRS goes in and takes the assets and income without any notice to the taxpayer. In this type of situation, once the taxpayer realizes what’s going on they do have the opportunity to challenge the assessment. Noting, that the jeopardy assessment/levy only tends to happen in more extreme situations in which the IRS sincerely believes that the taxpayer is going to fire or sell the assets or leave the country.

How to Protect Against Seizure

For taxpayers who may be at risk for a levy, lien, or other type of seizure of assets, property, or income by the IRS there are actions that they can take to try to avoid or minimize the damage caused by the IRS.

Challenge the Underlying Tax or Penalty

First, taxpayers have an opportunity to challenge the penalty or tax amount due through various methods depending on the type of debt, the amount of money owed, etc. Let’s look at some of the common ways to challenge the penalty.

Protest Letter

Oftentimes, the first step in challenging an assessed penalty is to protest the penalty. This is typically done by following a protest letter with the Internal Revenue Service.

IRS Appeal

Taxpayers may have the opportunity to appeal a levy after it was issued by filing an action with the IRS Independent Office of Appeals. But, in general, it is better to try to avoid or circumvent the seizure before it happens.

Collection Due Process Hearing (CDP)

One type of hearing that the taxpayer can request (in some instances) is referred to as a Collection Due Process Hearing. The Collection Due Process Hearing is technically a type of appeal but operates differently. The taxpayer has to wait until they receive a notice such as a federal tax lien or Final Notice of Intent to Levy. But then they have the opportunity to challenge the IRS and if they lose, they can still go to Tax Court, which is generally unavailable if the Taxpayer goes through a regular appeal through the IRS’s independent office of appeals.

Tax Court

If the taxpayer is not successful during the protest, appeals, or collection due process phases, they may have the opportunity to go to tax court. The benefit of going to U.S. Tax Court instead of the Federal District Court or the Court of Claims is that the taxpayer does not have to pre-pay the debt to go to federal court, which is required as per the Flora rule.

Federal Litigation

Depending on how the taxpayer wants to pursue a challenge with the IRS, they may consider prepaying the amount issued and then pursue a federal court case at the District Court or the Court of Claims. In this type of scenario, while the taxpayer must prepay the liability first, it gives them the opportunity to bring the case before a jury if they so choose to (taxpayers do not receive a jury trial in a Tax Court case).

Late Filing Penalties May be Reduced or Avoided

For Taxpayers who did not timely file their FBAR and other international information-related reporting forms, the IRS has developed many different offshore amnesty programs to assist taxpayers with safely getting into compliance. These programs may reduce or even eliminate international reporting penalties.

Current Year vs Prior Year Non-Compliance

Once a taxpayer missed the tax and reporting (such as FBAR and FATCA) requirements for prior years, they will want to be careful before submitting their information to the IRS in the current year. That is because they may risk making a quiet disclosure if they just begin filing forward in the current year and/or mass filing previous year forms without doing so under one of the approved IRS offshore submission procedures. Before filing prior untimely foreign reporting forms, taxpayers should consider speaking with a Board-Certified Tax Law Specialist who specializes exclusively in these types of offshore disclosure matters.

Avoid False Offshore Disclosure Submissions (Willful vs Non-Willful)

In recent years, the IRS has increased the level of scrutiny for certain streamlined procedure submissions. When a person is non-willful, they have an excellent chance of making a successful submission to Streamlined Procedures. If they are willful, they would submit to the IRS Voluntary Disclosure Program instead. But, if a willful Taxpayer submits an intentionally false narrative under the Streamlined Procedures (and gets caught), they may become subject to significant fines and penalties. 

Need Help Finding an Experienced Offshore Tax Attorney?

When it comes to hiring an experienced international tax attorney to represent you for unreported foreign and offshore account reporting, it can become overwhelming for taxpayers trying to trek through all the false information and nonsense they will find in their online research. There are only a handful of attorneys worldwide who are Board-Certified Tax Specialists and who specialize exclusively in offshore disclosure and international tax amnesty reporting. 

*This resource may help taxpayers seeking to hire offshore tax counsel: How to Hire an Offshore Disclosure Lawyer.

Golding & Golding: About Our International Tax Law Firm

Golding & Golding specializes exclusively in international tax, specifically IRS offshore disclosure. 

Contact our firm today for assistance.