You may have heard about the IRS seizing a taxpayers assets for unpaid taxes. These can include, among other things, the vehicles that they own. So the short answer to the question is yes, the IRS can seize a taxpayers vehicle. But let’s discuss the mechanics of how it gets to this point and some other important items shall we?
Why does the IRS seize vehicles? The first thing to know is that if you owe the IRS under $5000, your assets may not necessarily be seized and sold off. Per the 2019 IRS Data Book, in 2018 and 2019 the IRS seized a total of 275 and 228 assets respectively. Also, if you lease property, then you aren’t the legal owner. The IRS can’t seize items you don’t own, unless you have built up equity, or an ownership interest, in a leased asset. For most items, such as a rented auto, you won’t have any equity or it will be too small for the IRS to consider.
In the instances above, the IRS will seek to satisfy the collection of the debt owed through other means. This could include garnishing your income or seizing your federal tax refund. Now if the debt is substantial, then that’s where vehicle seizure comes into play.
The IRS utilizes progressively serious methods to try to collect your tax debt before seizing your vehicle. It will begin by informing you of your tax debt and giving you the opportunity to pay it. When they have sent numerous notices and attempted to collect, but have been unable to or can’t communicate with you regarding a reasonable plan for repaying your debt, it will proceed to file a federal tax lien against you. The Notice of Federal Tax Lien will alert creditors that the government has a legal right to your property.
Once other methods of collection have been exhausted, the IRS will use its power to seize assets by use of a levy. An IRS levy permits the legal seizure of your property to satisfy a tax debt.
How does the IRS seize a vehicle? A typical IRS seizure usually goes as follows:
- Local law enforcement accompanies IRS Revenue Officers so they are not interfered with nor attacked.
- The Revenue Officers will present their credentials to the taxpayer as well as the order (typically from a judge) that states they have a right to take the property.
- The IRS contractors (e.g. towing companies) will then secure the asset and remove it from the property for storage at a IRS facility.
We scoured the internet for a video showing an actual IRS vehicle seizure in process. This very dated video is all we could come up with. Regardless of how old it is, note how high the tension is!
What does the IRS do with the seized vehicles? The first thing that happens is that the vehicle gets moved to a storage facility. Next, the taxpayer is usually given one last attempt to settle the debt and reclaim the asset. But simultaneously, the IRS post public notice that the item is available for purchase from the US Government.
Generally speaking, the vehicle will be sold off relatively quickly, usually at an auction that is open to the public. The money raised from the sale is then applied to the tax debt that you owe to the IRS. The goal of seizing assets is to satisfy the debt as quickly as possible since you failed to pay it off yourself.
The image below shows seized vehicles by the IRS and how they notify the public of an auction. Anyone want to purchase a 2018 Ferrari??
How to avoid seizure. The best way to avoid having your assets seized is to file your taxes and pay what you owe on time each year. However, if you cannot fulfill either of these obligations, you should communicate with the IRS and be honest about your financial situation.
You could be eligible for a payment arrangement, which would allow you to pay off your debt in monthly payments. The arrangement will take into consideration:
- How much money you make
- Your household size
- How much you pay in rent, utilities, and other basic expenses
- The total value of your assets
The IRS will then determine a monthly amount that you should be able to pay toward your debt. In extraordinary situations, your tax debt could be forgiven. Forgiving a tax debt is a rare occurrence. However, it could be possible if you experience hardships like:
- High medical costs
- Death of an immediate family member
- Terminal illness
- Job loss
- Slowing down of your business