January 21, 2015

8834514_sOne of the most common concerns among individuals who owe the IRS back taxes is that the agency will one day show up and take your house away from you.

If you’re wondering if the IRS can legally take your home, the quick answer is yes. Realistically speaking, however, they probably won’t.

In order to seize your principal residence, the agency is first required to obtain approval from a U.S. District Court judge in writing. You may contest this court order, and may request help from the Taxpayer Advocate Service to stop the seizure.

When determining whether judicial approval is needed to take your home, the definition of “principal residence” must be taken into consideration. According to the tax regulations, a house trailer or a houseboat may be classified as a principal residence. Your rental property or vacation home, on the other hand, may be seized at any time.

Regardless of what you may have heard, it is unlikely that the IRS will levy on your house, or even your other assets such as your furniture or cars. Due to the Taxpayer Bill or Rights, the IRS is generally discouraged from foreclosing upon your home and only does so as a last resort.

They’d much rather have you pay your back taxes through a tax settlement or a payment plan. Garnishing wages or levying your bank accounts and account receivables are an easier way for them to collect unpaid taxes. If they find no reasonable alternative to collect the unpaid taxes owed to them, only then will they opt to foreclose upon your home.

If you are negotiating with the IRS, it is important to keep in mind that the assets you are most concerned about the IRS taking are the often assets that the agency is least likely to take away from you. This is because the Internal Revenue Manual states that if there is insufficient to no equity in your property, the IRS is prohibited from seizing it.

In order for the IRS to be interested in your primary residence under the equity rules, there must be a substantial amount left after taking the value of your home, subtracting your mortgage, and then reducing it further by the costs of sale. The quick sale value is often used to make a determination of whether there is equity in your home, which is 80 percent of the full fair market value. Even with the equity, seizing your home is still something the IRS generally does not wish to do.

The IRS is fully aware that taking a personal residence is a drastic measure, and so they will only do so in rare situations and only after making several attempts to resolve the liability through other methods.

Categories: IRS