Yes, but the IRS is required to obtain a U.S. District Court judge’s approval in writing before the seizure of your “principal residence.”
Generally speaking, the IRS does not want to foreclose upon your home. The IRS would rather see you pay your back taxes through a payment plan or tax settlement, known as an offer in compromise, than foreclose upon your home.
Normally, the IRS will go after your principal residence as a last resort. It’s much easier for the IRS to collect unpaid taxes by levying your bank accounts and account receivables or garnishing wages. However, if there is no reasonable alternative to collect your unpaid taxes, then the IRS may foreclose upon your “principal residence.”
The definition of “principal residence” is critical in determining whether or not judicial approval is necessary in taking your home. The meaning of principal residence in the tax foreclosure context is borrowed from the same tax code provision, §121, that determines whether you can exclude up to $250,000/$500,000 (if a joint return is filed) of the gain from the sale of a home with one exception. The IRS in Chief Counsel Advice 200947036 stated that the “2-out-of-5 year” residency requirement which is necessary to qualify for the capital gains exclusion is irrelevant in making the principal residence determination. The tax regulations state that a houseboat, a house trailer, or shares or in a cooperative housing corporation could be your principal residence.
What if I have multiple properties?
If you have multiple properties, then your principal residence is where you spend the majority of your time during the year. To assist the Revenue Officer, an IRS employee in charge of collecting back taxes, in their determination of a principal residence the following criteria is used:
- your place of employment;
- the place where your family members reside;
- the address listed on your federal and state tax returns, driver’s license, automobile registration, and voter registration card;
- your mailing address for bills and correspondence;
- the location of your banks; and
- the location the religious organizations and recreational clubs with which you are affiliated.
If the IRS is considering seizing your home, then the tax code, I.R.C. § 6334(a)(13)(A), requires that you owe more than $5,000.00 in back taxes. Therefore, if the amount you owe the IRS does not exceed $5,000.00, then your principal residence is exempt from levy.
If the IRS decides to foreclose upon your home, the Internal Revenue Manual, bylaws for IRS employees, instructs the IRS to obtain area director approval unless the collection of tax is in jeopardy. For a discussion on jeopardy levies, check out my blog at https://www.irsproblemsolve.com/2013/12/back-taxes-jeopardy-live/.
If the area director approves the decision to foreclose upon your home, then the next step is for the IRS to petition the US District Court for approval. In court, the IRS must demonstrate the following:
1) You owe an outstanding tax liability;
2) The IRS followed the law and procedure pertaining to the levy; and
3) There is no reasonable alternative for the collection of your back taxes.
If the IRS successfully proves its case, you would have 14 days to object.
It may be possible to negotiate with the IRS for the release of your property any time up to the sale. At the Law Offices of Todd S. Unger, Esq. LLC, we can verify that the proper administrative and judicial procedures have been followed if the IRS is threatening or has seized your home. If you owe back taxes and the IRS has threatened to seize your home or has seized your home, then contact the Law Offices of Todd S. Unger, Esq. LLC today 855-896-1566.