How IRS Seizure and Sale Actually Works, Step by Step

Most IRS collection happens on paper. A notice of levy goes to a bank or an employer, and money moves without anyone touching anything. Seizure is different. A revenue officer takes physical possession of a car, a building, equipment or inventory, and the IRS sells it.

The authority comes from IRC 6331(b), which says the term levy includes the power of distraint and seizure by any means, and that the IRS may seize and sell property, real or personal, tangible or intangible. The power is broad. The procedure around it is not casual, and understanding the sequence is the best defense.

Step 1: assessment, notice and demand, and the levy notices

Seizure starts where every levy starts. Under IRC 6331(a), the tax must be assessed and you must have neglected or refused to pay within 10 days after notice and demand. Under IRC 6331(d), the IRS must give written notice of its intent to levy at least 30 days before the levy. Under IRC 6330(a), the IRS must give you notice of your right to a Collection Due Process hearing at least 30 days before the first levy for that tax period.

IRM 5.10.1.6 confirms that the same pre-levy notice requirements apply to a seizure as to a bank or wage levy. The exception is jeopardy, discussed in jeopardy levies and assessments.

Step 2: the decision to seize

Seizure is not automatic. IRM 5.10.1.4 says the IRS will not seize from taxpayers who will pay or cannot pay. That includes people working with the IRS to adjust an assessment they disagree with, people who will pay in full within a reasonable time, people who need a reasonable period to sell an asset or get a loan, people in filing compliance who submit a processable offer, people with no ability to pay and no seizable assets, and people who request and qualify for an installment agreement.

Seizure is considered for taxpayers who will not pay: those who can resolve the debt but refuse, those with equity they will not borrow against or sell, those pyramiding new liabilities, those relying on frivolous arguments, those who will not cooperate or provide financial information, and those who keep defaulting. The IRM also says seizure will not be pursued if it would create economic hardship as defined in the regulations, and the decision must be based on your situation at the time.

Translation: the fastest way to take seizure off the table is to move into the "will pay" or "can't pay" category with something the IRS can verify.

Step 3: the IRC 6331(j) investigation

IRC 6331(j) bars a levy on property that is to be sold until a thorough investigation of its status is completed. The statute lists four elements, and IRM 5.10.1.5 repeats them:

• verify the taxpayer's liability;
• complete the analysis under IRC 6331(f), which prohibits a levy when the expected expenses of levy and sale exceed the property's fair market value;
• determine that the equity in the property is sufficient to yield net proceeds; and
• thoroughly consider alternative collection methods.

The equity analysis is concrete. IRM 5.10.1.5.3.1 says the revenue officer documents estimated minimum net sale proceeds, generally using 60 percent of fair market value as the reduced forced sale value, minus senior encumbrances and expected expenses. If there are no estimated net proceeds, the revenue officer cannot recommend seizure.

That rule protects heavily mortgaged property in practice. If the loan balance eats the forced-sale value, there is nothing for the IRS to gain.

Step 4: approvals and personal contact

Seizures require management approval, and certain assets require more. IRM 5.10.2.4 requires area director approval for seizing a principal residence, tangible personal or real property used in an individual's trade or business, perishable goods, the contents of a principal residence, and certain retirement plan assets. A principal residence also requires written approval by a federal district judge or magistrate under IRC 6334(e)(1). The house rules are in can the IRS seize my house.

IRM 5.10.1.6.1 also requires the revenue officer to attempt personal contact before the seizure, by phone or field visit, to tell you seizure is the next planned action and give you a chance to resolve the debt. If you have a representative, the contact attempt goes to the representative.

If the property is on private premises, the revenue officer also needs your written consent or a court order called a writ of entry. That rule comes from the Fourth Amendment and is explained in writs of entry.

Step 5: the seizure and the Notice of Seizure

On the day of the seizure, the revenue officer serves Form 668-B, Levy, and takes possession. Under IRC 6335(a), as soon as practicable after the seizure, the IRS must give the owner written notice specifying the sum demanded and describing the property. The IRS uses Form 2433, Notice of Seizure. IRM 5.10.3.9 notes that a seizure occurs on the date the notice of seizure is provided, not the date the levy is made.

With Form 2433, the revenue officer must give you Publication 1660, which explains your appeal rights. Under IRM 5.10.3.10, you have 10 business days from the date the Notice of Seizure is provided or left at your home or business to appeal the seizure through the Collection Appeals Program on Form 9423. If business equipment essential to your operations was seized, you can also ask for an expedited management review under IRC 6343(a)(2).

Step 6: minimum bid, notice of sale and the sale

After seizure, the property goes to the IRS's Property Appraisal and Liquidation staff, known inside the agency as PALS. Under IRC 6335(e), the IRS sets a minimum price before the sale, accounting for the expense of the levy and sale. You get a copy of the minimum bid worksheet and 10 days to challenge the valuation.

IRC 6335(b) requires notice of sale to the owner and public notice in a newspaper in the county, or posting if there is none. IRC 6335(d) says the sale must take place at least 10 and no more than 40 days after public notice, in the county where the property was seized unless the IRS orders otherwise. The sale is by public auction or sealed bid. The details are in IRS auctions and minimum bids.

You also have a right most people never use: under IRC 6335(f), the owner can ask the IRS to sell the property within 60 days, and the IRS must comply unless it determines that doing so would not be in the government's best interest. That can stop storage costs from eating the equity.

Step 7: redemption and proceeds

Under IRC 6337(a), you can redeem the property any time before the sale by paying the amount due plus the expenses of the proceeding. For real estate, IRC 6337(b) allows redemption within 180 days after the sale by paying the purchaser the price paid plus interest at 20 percent per year. That is covered in redeeming property.

Sale proceeds are applied under IRC 6342: first to the expenses of the levy and sale, then to any specific tax on the seized property, then to the liability. Any surplus is credited or refunded to the person legally entitled to it, on application.

Where the process can be stopped

Every step above is a checkpoint. A pending installment agreement request or a pending offer generally bars levy under IRC 6331(k). A timely CDP request suspends levy for the periods involved. A missing 6331(j) element, a missing approval, or a failure to get consent or a writ for private premises is a procedural defect. And IRC 6343 requires release of a levy in specific situations, including when release will facilitate collection, when you enter an installment agreement, or when the levy creates economic hardship.

If a revenue officer has told you seizure is the next step, the window to change the outcome is open, but it is not wide. The firm's main site has a general overview of IRS levies. For seizure specifically, the move is to get a verified collection alternative in front of the revenue officer before the approval package goes up the chain. Officers want closures. A credible alternative is a closure.