Understanding IRS Property Seizures
Civil Asset Forfeiture Laws: A Comprehensive Guide to Asset Seizure and Asset Forfeiture
Did you know that if you leave your tax debts unpaid without reaching an agreement with the IRS, law enforcement can legally seize your property to pay debts owed?
To seize your property, the IRS only needs to give taxpayers ten days after issuing a notice and demand for payment of taxes owed. After just ten days, the IRS can collect all taxes owed by seizing your property and auctioning it off.
When carrying out an asset seizure, the IRS will frequently seize real estate property, automobiles, private aircraft, and even business assets if they get judged as “ill-gotten gains,” or assets obtained by engaging in unlawful activity.
Fortunately, many safeguards are in place that ensure that any assets seized only get executed under specific circumstances.
Here is a breakdown of the Civil Asset Forfeiture Laws and the parameters that govern those laws. This information is important to know because it could help keep you safe.
Asset Seizure vs. Asset Forfeiture: What is the Difference?
Some people, even experts, use the terms asset seizure and asset forfeiture interchangeably even though they have separate meanings and refer to distinctive processes and concepts.
But, to distinguish the differences between asset seizure and asset forfeiture, you need to understand what is referred to as an asset in both of these terms.
What is an Asset as it Relates to Asset Seizure and Asset Forfeiture?
An asset can be a piece of property, an item, or any other object with value, whether that value comes from the thing itself or the value it brings to the owner. Some examples of this include:
Cash
Real estate
Acreage
Structures
Automobiles
Motor homes
However, tangible possessions are not the only type of property that can get seized by the IRS in the pursuit of paying tax debts. Additional examples of an asset include but are not limited to:
Tax refunds
Professional qualifications
Income-generating artwork
Liquor licenses
An asset can be anything that has value to the individual who owns, has, or seeks it out.
Asset Seizure
The act of physically seizing an item or transferring it from its owner or possessor into the possession or control of the government is referred to as Asset Seizure. These processes typically take place through the medium of a law enforcement agency. Asset seizure most commonly takes place for one of the three following reasons:
in the course of an arrest,
in compliance with a search warrant,
or in response to a warrant issued for particular items that are subject to forfeiture.
Although these are the three most common reasons for asset seizure to take place, the IRS can seize assets due to unpaid taxes.
Asset Forfeiture
Contrarily, Asset Forfeiture refers to a legal procedure whereby the ownership of an asset gets taken away from people. Ownership of the asset is taken away due to the asset’s improper use, acquisition through illegal means, or use in support of committing a crime. The government receives title after a civil, criminal, or administrative procedure.
Any planned asset forfeiture or seizure follows a lengthy process that includes an investigation to determine if asset forfeiture is appropriate, a managerial review, and a slew of forms detailing the entire process. This lengthy process gives taxpayers the opportunity to establish why their assets should not be seized and demonstrate any financial hardship that could stem from asset seizure and forfeiture.
A Detailed Breakdown of Asset Seizure
Asset seizure refers to the temporary suspension of a property’s transfer, conversion, disposition, or movement. It can also refer to the brief takeover of custody or control of a property following a court order or other competent authority’s directive.
The Fourth Amendment governs all government asset seizures. Their use began during the early years of American democracy. Today, the IRS needs the approval of a United States District Court judge prior to seizing any assets of a taxpayer.
In addition to requiring the approval of a United States District Court judge prior to the seizure of any taxpayer assets, the IRS must also follow a distinct three-step process:
Step #1: A Notice of Demand for Payment is sent by the IRS to the taxpayer.
Step #2: The Notice of Demand for Payment is ignored, neglected, or payment is failed by the taxpayer.
Step #3: A Final Notice of Intent to Levy and Notice of Your Right to a Hearing is delivered to the taxpayer.
Once the Final Notice of Intent to Levy and Notice of Your Right to a Hearing is delivered, the taxpayer has 30 days to make arrangements for payment with the IRS or appeal the claimed debt.
IRS Asset Seizure Errors
Like every organization, the IRS makes errors as well. Except, when the IRS makes an asset seizure error it can detrimentally impact an individual taxpayer’s life.
Despite the lengthy processes required for the IRS to seize property, errors still occur that can result in the IRS wrongfully seizing property. Although, most of these errors are in the types of assets seized as opposed to seizing property from a law-abiding tax-paying citizen.
The IRS exempts specific types of property from seizure. These exemptions include:
Clothing
School books
Furniture valued at under $6,250
Personal items valued at under $6,250
Books for a trade valued at under $3,125
Tools for a trade valued at under $3,125
Unemployment benefits
Specific pension payments
Child support
Specific disability payments
Minimum wage exemptions
And more
With this list of exemptions, the Treasury Inspector General for Tax Administration found “instances in which the IRS did not comply with a particular Internal Revenue Code section, an internal procedure, or there was no guidance present, resulting in violations of taxpayers’ rights and taxpayer burden.”
To help combat these mistakes, the IRS uses pre-seizure planning techniques to avoid potentially expensive management or safekeeping concerns. The U.S. Marshals Service, the main federal agency managing confiscated assets, used the pre-seizure planning approach to facilitate asset seizures.
Whether or not to seize the property for asset seizure should be a top priority for IRS officials during pre-seizure planning.
A Detailed Breakdown of Asset Forfeiture
As a crucial weapon in enforcing tax laws, forfeiture is a legal procedure that enables the state to take ownership of property linked to a crime away from a person without paying them anything.
Forfeiture of assets to the IRS should only occur as a last resort to satisfy a tax debt. The IRS aims to always find alternative resolutions for satisfying tax debts. This can include leveraging the equity of an asset through an asset loan or an agreed-upon repayment plan. Additionally, the IRS aims to avoid asset forfeiture that can cause significant financial hardship making it more difficult for the taxpayer to satisfy owed taxes.
Types of Asset Forfeiture
Three types of forfeiture can occur following federal law. These are administrative forfeiture, civil forfeiture, and criminal forfeiture.
Administrative Forfeiture
Administrative forfeiture is an in rem (against the property) action that permits the United States to seize property without filing a lawsuit in federal court. If no one has contested the seizure of the assets through filing a claim, the agency that took the assets will initiate the administrative forfeiture process.
Several procedures are in place, including rigorous time constraints and notice requirements to safeguard the interests and rights of property owners. The IRS can administratively forfeiture property valued at $500,000 or less given there was no claim on the forfeited property. Property valued at $100,000 or less can be administratively forfeited given there is no claim or cost bond filed.
Criminal Forfeiture
Criminal forfeiture is a legal term for an action brought in personam (against the person) against a defendant that also includes a notification of the intention to forfeit property in a criminal indictment. In addition to forfeiture being a part of the defendant’s sentence, a criminal conviction is necessary. This type of forfeiture gets restricted to the defendant’s property interests, including any gains from illicit action.
It typically only applies to the assets in the specific counts for which the offender is found guilty. A court may order the forfeiture of a particular item of the property named in the indictment, cash as a money judgment, or other property as replacement property as part of the sentencing process.
For the government to convict someone of a crime and seize property, they must prove the person used the asset to commit the crime. This proof must be evidence beyond a reasonable doubt. It can include property used for tax avoidance.
Following the entry of a preliminary order of forfeiture, a parallel procedure gets initiated to ascertain the existence of any potential equitable interests in the property the government seeks to seize.
Civil Forfeiture
Unlike criminal forfeiture, which targets the offender directly, civil forfeiture targets incriminating goods.
Although the government must still demonstrate in court that the property is connected to the non-payment of taxes, there is no requirement for a criminal conviction. In a civil forfeiture case, the court can bring everyone with a stake in the property together in the same case. When this determination is made, the court can address all the property’s difficulties at once. Any person who asserts an interest in the seized property is a claimant in a civil forfeiture lawsuit. The government serves as the plaintiff, and the property serves as the defendant.
Through civil forfeiture, the government is allowed to pursue claims against the property that would otherwise be inaccessible through criminal forfeitures. This includes those owned by fugitives and criminals operating outside the country, including terrorists. Assets held by defendants who have passed away or in cases where no defendant can get located may also get recovered through civil forfeiture.
Civil Forfeiture: A Constantly Contested Asset Seizure Method
At both the federal and state level, civil forfeiture is constantly under significant scrutiny. This results in the processes and laws governing civil forfeiture changing constantly.
Federal Action
The concept of civil asset forfeiture can be traced back to maritime and customs law. Nevertheless, the Comprehensive Crime Control Act of 1984 was the legislation that initiated the modern practices of civil asset forfeiture. This statute established the Equitable Sharing Program and the Assets Forfeiture Fund inside the Department of Justice (DOJ) to distribute proceeds from seized assets.
Through a process known as “Equitable Sharing,” state and local law enforcement agencies can transfer assets confiscated in connection with federal offenses to federal agencies. These federal agencies can subsequently carry out forfeiture actions on those assets.
Once the assets become forfeited successfully to the federal government, the proceeds get deposited into an appropriate forfeiture fund. The state and local agencies obtain a percentage of the total amount, depending on the specific type of case and the specific circumstances of the case in question.
In 2000, the Federal Civil Asset Forfeiture legislation underwent a significant overhaul by Congress. The Civil Asset Forfeiture Reform Act included procedural tools and time constraints and broadened the definition of forfeiture to include any defined unlawful behavior or activity.
In 2015, the Attorney General of the United States implemented a new policy that made it illegal for federal agencies to “adopt” or “forfeit” assets that had been confiscated by state and local law enforcement agencies. This included a few restricted exceptions for the sake of public safety.
In 2017, the policy got reversed by the Attorney General of the United States. This option allowed the federal government to take possession of all assets associated with federal crimes that state and local governments had lawfully seized. Additionally, this allowed the Equitable Sharing Program to get revived.
State Action
Truthfully, developments at the federal level have gradually loosened and even tightened controls on civil asset forfeiture over time. However, state legislatures have enacted their civil asset forfeiture laws, resulting in considerable variation between states.
In 2017, the government introduced more than one hundred pieces of legislation concerning the civil seizure and sale of assets in each of the fifty states. To succeed in the property forfeiture case, many people considered changing the standard of proof. The standard of proof refers to the degree of evidence required for the IRS to seize property due to the nonpayment of taxes and the procedures following that allow the taxpayer to show their intentions of satisfying their tax liability.
These changes are intended to help reduce the likelihood of wrongful asset seizure by the IRS. Wrongful asset seizure occurs when the IRS fails to comply with and follow all rules, regulations, and procedures outlined for the lawful seizure of assets. It includes providing written notice to the taxpayer, not seizing exempt property, allowing the taxpayer the opportunity to reach a repayment agreement, and avoiding placing undo financial hardship on the taxpayer.
Although the IRS follows federal regulations, states work to improve the procedures that define and safeguard the rights of property owners in their states. This can include strengthening protections for a state’s citizens and providing resources to help taxpayers navigate federal tax payments. States can also help taxpayers avoid asset seizure by providing resources that help taxpayers reach a repayment agreement that benefits all parties involved.
Conclusion
The rules governing the seizure and forfeiture of assets give the IRS the authority to seize property to satisfy any tax debt. The government can then sell the property at auction.
Assets can be seized and forfeited to the IRS due to nonpayment of taxes. They only need to provide two separate notices before seizing property. Additionally, the IRS does not always fully comply with the processes and procedures required for the lawful seizure of assets by the IRS. This leads to property forfeiture and seizure laws regularly being changed to better address the concerns and reasons for property seizure by the IRS. Need help with asset seizures? Contact us today for a free tax consultation!
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