If you own a home, losing it may be one of your biggest fears. If you own a home and owe the IRS a substantial debt, losing it is your biggest fear. It is true that the IRS can take a home to sell and pay towards tax debt BUT it is hard for them to do it and it is less likely to occur than the IRS wants you to believe.
In order to seize and sell a home, the IRS has to send a request to the US Department of Justice. It is the DOJ that “collects” a home for payment of tax not the Internal Revenue Service. The IRS is very careful about which cases it sends to the DOJ. In 2013, the IRS reports that only 547 home seizures took place in the entire United States. There are about 10 to 12 million cases in the IRS’ load of cases at any given time.
There are several reasons why so few homes are placed into the seizure process with the DOJ. One reason and probably the main reason is that the law won’t allow the Government to sell a house in a tax case unless there is equity in it. The sale has to result in funds paid to the IRS. In order to determine the equity amount, the IRS will subtract 20% from it’s value and than subtract the mortgage amount. If your home in Arizona is worth $250,000.00 and the mortgage is $200,000.00, the IRS would reduce the value by $50,000.00 and subtract the mortgage amount leaving zero equity. Even if there is some equity, the IRS isn’t interested unless there is a substantial amount. $20,000.00 equity in a home is usually not enough.
The IRS is also not really interested in homes as well unless the underlying debt is large. There are no hard and fast rules about this but there usually needs to be significant home equity AND a very large… even a 6 figure debt.
Even if the above is true, the IRS still doesn’t want to refer the case to the DOJ unless there are very serious conditions. A taxpayer who has lots of equity, lots of debt, and is non-communicative, non-compliant, or is trying to hide, will be the squeaky wheel that may get some grease. Even under those circumstances the IRS will consider seizure to the be very last option. See IRS Policy Statement 5-34.
If the IRS has already started the seizure process it can’t just show up and take the home. It has to provide you with a Final Notice of Intent to Levy which will provide you an appeal hearing and the ability to sue in Tax Court for an independent review. After the notice and appeals process has taken place it will than send the case to the DOJ Tax Division and that division will file a lawsuit in US District Court. The home can’t be sold without a judgement approving the sale per IRC 6334(e).
So if you own a home and you have a tax debt, don’t panic. There are a number of things that would have to happen for your home to be seized and for most people the IRS just won’t be interested.