The action of seizure of assets is often resorted by IRS to recover tax debts. Internal Revenue Code empowers the IRS to collect debts and levy assets to satisfy outstanding tax liabilities. However, there are certain types of valuable assets that the IRS cannot touch or seize. Understanding these exemptions can help individuals protect their assets and financial stability in the event of an IRS collection action.
IRC § 6334: Break on the power of seizure of assets
Social Security payments or veterans’ benefits: The IRS cannot seize accounts that contain federal benefits, such as Social Security payments or veterans’ benefits. These benefits are protected under IRC § 6334, which lists the types of property exempt from levy.
Joint accounts of husband & wife: Additionally, the IRS cannot seize accounts that a husband and wife jointly hold unless both parties are liable for the tax debt. This protection is provided under IRC § 6334(a)(9), which states that IRS can not levy a joint bank account unless both parties are jointly and severally liable for the tax debt.
401(k)s and pension plans: There are also certain types of retirement accounts that the IRS cannot seize to satisfy a tax debt. IRC § 6334(a)(16) exempts individual retirement accounts and retirement plans, like 401(k)s and pension plans, from levy. However, the IRS can garnish wages and levy other assets to collect unpaid taxes, even if the individual has a retirement account.
In addition to these exemptions, there are certain valuable items that the IRS cannot seize to satisfy a tax debt. These exemptions, which are listed in IRC § 6334(a), include the following:
- Tools of the trade: The IRS cannot seize tools and equipment necessary for an individual to perform their job as long as the total value does not exceed $3,775 (as of 2021). This includes items such as computers, musical instruments, and vehicles used for work purposes.
- Personal property: The IRS cannot seize clothing, household furnishings, or other items necessary for the taxpayer’s basic living expenses. However, this exemption does not apply to luxury items or items with high value.
- Life insurance policies: No matter how big the policy is or whether it is a term or permanent policy, the IRS has no power to seize it.
- Health aids: The IRS cannot seize medical equipment and other health aids that are necessary for the taxpayer’s well-being. This includes items such as wheelchairs, crutches, and hearing aids.
Read our other posting on 10 assets that are out of seizure of assets
It’s important to note that these exemptions are not absolute and can be waived if the taxpayer agrees to release them. Additionally, the IRS can levy other assets, such as real estate and personal property, to collect unpaid taxes.
If you are facing an IRS collection action and are concerned about protecting your assets, you must speak with a tax professional or an attorney who can advise you on your options. While the IRS does have the authority to levy assets to collect unpaid taxes, there are limits to this authority, and certain types of bank accounts and valuable things are protected from the seizure of assets.
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