Federal income tax and asset protection

If you owe money to the Internal Revenue Service (IRS) related to unpaid federal income tax, you have likely experienced an escalating series of attempts by the IRS to collect that unpaid money.  The taxes we pay to the IRS are used in large part to fund the federal government of the United States.  If federal income tax is not paid or collected, the government simply will not have the funding needed to function.  Therefore, the IRS has been given powerful authority to seek and collect payment of unpaid federal income tax.

If you do not willingly pay the federal income tax you owe or work with the IRS to establish some form of payment plan, the IRS is able to enforce its authority to collect those unpaid taxes through the use of a levy.  A levy is a legal means by which the IRS is able to seize property from a taxpayer.  An IRS levy leaves you little in the way of asset protection, as the IRS can use a levy to seize your wages, checking and savings account balances, cars and trucks, retirement accounts, and real estate.

If you owe money to the IRS and believe they may obtain an IRS levy against your property, what you may be more interested in understanding is asset protection–that is, what assets are protected from an IRS levy?  Following is information about two ways you can establish asset protection against an IRS levy.

Obtain an IRS Exemption

The easiest means of asset protection is through an asset exemption offered by the Internal Revenue Service.  When the IRS exempts an assets from a levy, it means the IRS will not attempt to seize that asset.

The IRS generally exempts assets in two cases.  First, the IRS will not seize assets that are required in order for you to earn an income.  For example, if you are a handyman and you need your truck and tools to perform work, the IRS will likely allows you to keep those assets.

Second, the IRS will not seize assets that have no value.  This may include things that they simply cannot sell or assets that already have a liability attached to them.  For example, if you own a home but your mortgage is for an amount equal to the value of the home, then the IRS likely will not seize your home, because there would be no money left over after funds from the sale are used to pay off the mortgage.

Transfer Ownership

Assets that are transferred to ownership by someone else are not subject to seizure by the Internal Revenue Service, simply because they are no longer your asset.  However, such a transfer must occur well before the IRS levy goes into effect, as any asset transfer after the IRS levy is in place will be reversed by the IRS levy so the IRS can seize the asset.

Even if you transfer an asset to someone else before an IRS levy is enforced against you, if the transfer was purely to try to keep the IRS from seizing the asset, the IRS levy will still give the IRS power to seize the asset.

 

Some people may advise you that you can hide assets from the Internal Revenue Service by not telling the IRS about the assets and placing them in difficult-to-find locations such as offshore accounts.  However, hiding assets from the IRS is technically illegal and can result in serious repercussions if the IRS finds out you have lied to them or otherwise misled them about the assets you own.

Before you take any steps to shield your assets from an IRS levy, you should speak with a tax attorney.

How can I discuss my situation with a tax attorney?

By completing the short form found below, it will allow a tax attorney to contact you to discuss your situation.  The tax attorney will be knowledgeable about the statutes related to Internal Revenue Service tax levies and asset protection and will be able to evaluate your situation in light of these laws.

The conversation you have with the tax attorney will be free of charge, completely confidential, and will not obligate you to anything further.  Therefore, please take advantage of this opportunity to have an initial consultation with a tax attorney about your tax issues.

by Mark Johnston

Mark has been a contributor to legal web sites related to bankruptcy, tax, and criminal law since 2011. He has an Accounting degree from Texas A&M University.