Short answer: Yes, you can lose your home to the IRS. Are you likely to lose it? No. Let’s take a look at why.
First, it is not a simple process, the IRS Revenue Officer assigned to your case cannot decide to do this on their own. A seizure of your personal residence requires that the Revenue Officer get the approval of the area director first (either Field Area or Advisory/Insolvency), unless collection of the tax is in jeopardy. Seizing your home is also against IRS Policy. See Statement 5-34, Internal Revenue Manual (IRM) 18.104.22.168.8. Second, a Court order is required. Finally, you have the right to take the IRS to Tax Court to dispute the sale, and if unsuccessful, to defend your house against a Department of Justice foreclosure complaint.
The Seizure Process
There are two options for enforcing collection against the principal residence of a taxpayer or residence which is owned by the taxpayer but occupied by the taxpayer’s spouse, former spouse, or minor child. These two options cannot be used concurrently. One is a proceeding to obtain a court order allowing administrative seizure of a principal residence under Internal Revenue Code (IRC) section 6334(e)(1). The other is a suit to foreclose the federal tax lien against a principal residence under IRC section 7403. The suit to foreclose is the secondary alternative used only when the seizure remedy is not the optimal solution.
The current IRM 22.214.171.124, Judicial Approval for Principal Residence Seizures, provides the instructions for obtaining a court order allowing administrative seizure of a principal residence under IRC section 6334(e)(1). While not explicitly stated, the same considerations apply to suits to foreclose the tax lien on a taxpayer’s principal residence. Additionally, a suit to foreclose should only be pursued when there are no reasonable administrative remedies and hardship issues, as described below, are considered.
The No Equity Rule
If your home has “no equity”, the IRS is barred from seizing and selling it. The sale must result in money recovered. If you are not sure what this means, the term “Equity” is defined as the difference between what your house is worth, and how much you owe the bank on it. Generally, when the IRS or your tax attorneys determines the equity in your property, a quick-sale discount figure will be applied (FMV x.80) (or a 20% discount). In many cases, applying this calculation alone makes the seizure and sale of your residence a no go for the IRS.
How Often Does this Happen?
In 2014, for example, the IRS Data Book reported that there were 432 seizures of real property (houses) and personal property (cars) made. That’s out of the millions of delinquent taxpayer collection accounts. Folks, that is 0.00003927272 percent. Remember, this is generally against established IRS Policy. In most cases that I have seen, the IRS only goes after a residence if there is very large tax bill, a whole lot of equity, and the client failed to take the matter seriously enough and all other collection methods failed (e.g., bank levy or wage garnishment).
Unless you are a high roller or have just ignored the IRS collection efforts to work out a payment arrangement, chances are they don’t want your home. And, not only is seizing it a lot of work, but selling it is even more work. The lesson learned is that engaging the IRS early and tendering a well thought out plan to address your tax debt will avoid most of, if not all of, the unpleasant IRS collection tactics. In short, take the initiative; don’t wait for the IRS to send you a Notice of Seizure.
Generally, both you and your spouse are responsible, jointly and individually, for paying any tax, interest, or penalties from your joint return. If you believe your current or former spouse should be solely responsible for an erroneous item or an underpayment of tax from your joint tax return, you may be eligible for innocent spouse relief.
There are actually three different types of Innocent Spouse Relief, and each one has slightly different qualifications. A basic overview is given below, but for a more detailed explanation you should consult an experienced tax attorney.
- Innocent Spouse Relief: you qualify if your spouse did not report income or claimed false deductions, and you did not know about it. Under this program, the IRS will not hold you liable for any of the debt.
- Separation of Liability: you qualify if your spouse did not report income or claimed false deductions, and you did not know about it. Under this program, the IRS will calculate your “fair share” of the tax debt based upon how much of the income on the return was yours and only hold you responsible for that amount.
- Equitable Relief: you qualify if your spouse did not report income or claimed false deductions, OR you just couldn’t pay the tax when you filed the return. If your issue is simply one of not being able to pay, this is the only program available to you. Under this program, you explain to the IRS what portion you should be held liable for and why that is the fair thing for them to do.
Being divorced or separated does not automatically qualify you for Innocent Spouse relief, but is a factor that the IRS considers. Innocent spouse relief may also be available if you were a resident of a community property state and did not file a joint federal income tax return and you believe you should not be held responsible for the tax attributable to an item of community income.
If you need help with filing for Innocent Spouse Relief with the IRS, contact the tax attorneys with the Perliski Law Group at (214) 446-3934 for a free consultation or use our online form.
Small businesses who currently have employees can qualify for an In-Business Trust Fund Express Installment Agreement (IBTF-Express IA). These installment agreements generally do not require a financial statement or financial verification as part of the application process.
The criteria to qualify for an IBTF-Express IA are:
- You owe $25,000 or less at the time the agreement is established. If you owe more than $25,000, you may pay down the liability before entering into the agreement in order to qualify.
- The debt must be full paid within 24-months or prior to the Collection Statute Expiration Date (CSED), whichever is earlier.
- You must enroll in a Direct Debit installment agreement (DDIA) if the amount you owe is between $10,000 and $25,000.
- You must be compliant with all filing and payment requirements.
Businesses that do not qualify for an IBTF-Express IA should prepare Form 433-B, CIS for Businesses.
If you’re not sure how to proceed, contact one of the tax attorneys at the Perliski Law Group at (214) 446-3934 for a free consultation or use our online contact form.