Will the IRS Take My House for Owing Back Taxes?
Your options for exemptions in Georgia
on June 12, 2018
Updated on August 5, 2022
Many Georgia residents fall behind on their income taxes. This understandably leads debtors to worry about what might happen to their property and real estate—notably their home—in the event the IRS seeks to collect on an unpaid tax debt. Although it is possible to lose your home to the IRS, the law provides certain protections for homeowners and their families.
Federal Law Restricts the IRS’ Ability to Come After a Taxpayer’s Principal Residence
First off, if your tax debt is less than $5,000, the IRS cannot come after your house, period. The Internal Revenue Code expressly forbids such actions. The Code also exempts other basic necessities, such as wearing apparel and household furniture up to a certain value, from any tax collection activity.
And even if you owe the IRS more than $5,000 on a tax bill, agents cannot simply show up and kick you out of your house. The IRS will likely first file a lien against your property. A lien is not a seizure, but a creditor claim that must be satisfied before you can sell or refinance your property.
The next step is to ask a federal judge or magistrate for a levy (i.e., an order to enforce the lien and foreclose on your home). Keep in mind, the law does not require judicial approval for other kinds of IRS collections. For example, the IRS can levy and seize your checking or savings accounts. But it must get judicial permission before taking your house.
Note the IRS does not just need permission to take your principal residence. If you are divorced and still legally own your former spouse’s home, that property is subject to the same judicial approval requirements. The same goes for the principal residence of your minor children.
The IRS will also not typically seek to levy a property that lacks sufficient equity to actually pay the tax debt. In other words, if your home is financially underwater—the market value is less than what is owed on your mortgage—the IRS is unlikely to have any interest in seizing the property. Even if you have a small amount of equity, the IRS will likely pursue other collection avenues rather than go through the process of asking a judge for a levy order.
Alternatives for Resolving Your Tax Debt
The truth is that the IRS does not want to take your house. It wants your tax debt paid with as little effort as necessary on its part. “Always file your returns, even if you can’t pay,” says Vivian D. Hoard, a tax attorney at Taylor English Duma in Atlanta. “The penalties accrue much faster on a ‘failure to file’ than a ‘failure to pay.’”
If you are unable to pay your full debt right away, you can ask for an installment agreement or an offer in compromise (OIC). An installment agreement allows you to repay your entire debt over a period of up to five years, while an OIC means the IRS will agree to take less than the full amount of taxes owed. “The right decision is to go ahead and file, and start paying what you can every month,” Hoard says. “Then, the IRS will see that you’re trying to be compliant, and they will work with you on a payment plan. It’s the people who don’t file and don’t pay—and bury their head in the sand—that get into real serious trouble.”
An experienced Georgia tax attorney can advise you on the specific requirements for seeking an installment agreement or OIC, as well as assist you in dealing with the IRS with respect to either of these options. “You probably should call an attorney before you make a decision not to file your tax returns,” adds Hoard. “Generally, people wait until the IRS issues a notice of levy, and by then, it’s time to talk to someone. You’ve let it go too far.”
If you want more information on this area of tax law, see our tax overview.