This is a very often asked question: ” Can the IRS seize bank account ?” especially by a person who has tax debts. The answer is in the affirmative, as the Internal revenue Code has empowered IRS to do whatever to collect the tax dues. The power of seizure by the IRS comes from section 6331 of the 26US Code, which empowers the Treasury Secretary to collect the outstanding tax by levy upon all property and rights to property belonging to a taxpayer. However, IRC 6334 provides a list of properties that are exempt from IRS seizure.
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What is a Levy?
Levy’s definition is given in section 6331 of IRC to mean legal seizure of properties by authorized persons under the law. IRS acts on behalf of the Treasury Secretary, who is legally authorized by virtue of section 6332 of IRC to seize properties-movable and immovable -on which the delinquent taxpayer has interest or ownership.
Can IRS seize bank account?
Yes, not only the savings and deposits in your bank but IRS is empowered to all kinds of assets, dividends, accounts receivables, rental income or even those properties where you have an interest or joint ownership with others. The levy or seizure can be up to the extent of your share only, however. In fact, there is not a type of bank accounts the IRS can’t touch.
So, the answer to the following three often-asked questions about the seizure of properties by IRS a definite YES.
- Can the IRS take your car?
- Can the IRS seize jointly-owned property?
- Can the IRS take your house?
How often does the IRS seize property?
One good news is that the seizure of properties, especially immovable like houses, yachts, cars, equipment, etc., is not the main focus of the IRS for recovery. For example, Treasury Inspector General Report for 2019 suggests that seizures by decreased by 58 percent from 776 in the Fiscal.
Year 2011 to 323 in Fiscal Year 2017. [ source ]
3 Most Common Reasons Why IRS Seizes Assets?
The three most important reasons why the IRS seizes the properties of a tax debtor are as under: :
- Action information is with IRS that a person is indulged in committing tax fraud,
- You have undisclosed assets that IRS comes to know through various sources
- IRS came to know that you withheld payroll taxes but did not pay treasury.
10 Things Exempt from IRS Seize
26 U.S. Code § 6334 is headed as “Property exempt from levy”.The code lists types of property that is exempt from IRS seize operations.
- Wearing apparel and school books as necessary for the taxpayer or for members of his family;
- Fuel, provisions, furniture, livestock, and arms for personal use as does not exceed $6,250 in value;
- Books and tools necessary for the trade, business, or profession of the taxpayer that does not exceed the aggregate $3,125 in value.
- Any amount payable to an individual with respect to his unemployment
- IRS can not seize mail addressed to any person which has not been delivered to the addressee.
- Certain types of annuity or workmen’s pension payments can not be seized
- IRS can not seize the taxpayer’s salary, wages, or other income as is necessary to comply with such judgment for the support of minor children.
- IRS can not seize certain service-connected disability payments
- IRS can not seize any amount payable to an individual as a recipient of public assistance and also assistance under Job Training Partnership Act.
- IRS can not seize residences exempt in small deficiency cases, principal residences, and also certain business assets exempt in the absence of certain approval or jeopardy.
Does IRS Notify Taxpayers Before Levy on Property?
There are plenty of signs and notifications by IRS before they actually resort to levying your property. In fact, if you ask, ” how many notices does the IRS send before levy ?” , the simple answer is many. At the least, IRS must take three steps to guarantee that taxpayers were legally notified in advance about imminent seizure action if tax due remains unpaid.
- Step 1: IRS serves you a “Notice for Demand for Payment” clearly indicating the outstanding tax. There will be a time limit to pay the demand.
- Step 2: If you do not pay the tax due as per the notice for demand for payment or even contact IRS with a payment plan, you are deemed to have neglected the IRS notice.
- Step 3: After this, you will be served with a notice called “Final Notice of Intent to Levy,” with 30 days to dispute your tax demand with the IRS or come up with a payment plan.
Only after the date lapsed as per ” IRS notice of intent to levy “, the IRS will resort to levying your properties which includes seizing bank accounts . There are certain exceptional situations in which the IRS can seize properties without waiting for 30 days time period given in the “IRS notice of intent to levy” notice. These situations are:
- Tax debt collection from federal contractors
- If it is a case of Disqualified Employment Tax Levy, which is basically resorted if the IRS finds that the taxpayer had applied for a Collection Due Process hearing for unpaid employment taxes in the past two years.
- If a need arises for the seizure of state tax refund.
- If IRS suspects tax collection will fail if not pursued immediately
Can you file a suit against IRS for wrongful seizure?
The law has protected citizens of the USA from reckless or intentional, or by reason of negligence, disregards any provision seizure or action by IRS.Following two distinct provisions under 26 US Code that empowers victims to file a civil lawsuit against the United States for such reasons.
- Under 26 U.S.C. § 7433, if any officer or employee of the IRS recklessly or intentionally, or by reason of negligence, disregards any provision or regulation under Title 26 in connection with the collection of federal tax with respect to a taxpayer, such taxpayer may bring a civil action for damages against the United States.
- Under 26 U.S.C. § 7426, if the IRS wrongfully levied on property or wrongfully sold property pursuant to a levy, any person claiming an interest in such property may bring a civil action against the United States.
How Long Can IRS pursue back taxes?
So, IRS can pursue an unpaid tax for up to ten years from the date of the assessment order. The statute of limitation for the collection of taxes is vide 1998 IRS Reform and Restructuring Act which brought in IRC § 6502 that provides the IRS a period of 10 years from the date of assessment to collect the unpaid tax due . Therefore, once the ten years period lapses, usually the IRS has no legal way to collect that tax. The relevant provision is given below:
(a)Length of period
Where the assessment of any tax imposed by this title has been made within the period of limitation properly applicable thereto, such tax may be collected by levy or by a proceeding in court, but only if the levy is made or the proceeding begun—
(1)within 10 years after the assessment of the tax, or
Events that may extend 10 years period for collection of tax
There are some situations under which the IRS gets more time than 10 years. These events in which the statute of limitation of 10 years for the collection of tax dues gets extended are:
- 1. The taxpayer is out of USS for more than six months continuously, IRC 6503(c) suspends the time limitation.
- 2. If taxpayer files for bankruptcy, time limitation gets extended
- 3. If the taxpayer applies for an offer-in-compromise, IRS may request a voluntary waiver of the statute of limitations for five years as a condition. If you sign that, the collection statute of limitations gets extended.
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