The IRS has the power to foreclose its tax lien on your home under certain special circumstances. In order to permit a foreclosure, a supervisor, or manager in the IRS, must make certain determinations. The following factors must be considered:
- The taxpayer’s financial situation;
- The ability to make payments;
- Any prior attempts to pay the tax that is due; and,
- The taxpayer’s overall financial condition.
The value of the property is important. The current market value of the property, at the time foreclosure is contemplated, including the amount of any prior liens or mortgages on the property, must be considered to determine whether or not foreclosure would produce a reasonable amount of money for the government.
The impact on a taxpayer is an important factor. Not only must the taxpayer’s financial condition be considered, but the nature of the taxpayer’s family, the importance of the home and the potential disruption of their lives are all factors that may be considered by a manager in determining whether or not to allow a foreclosure.
Finally, the costs of collection and the interests of the government must be considered. The manager approving a foreclosure must consider costs that would be associated with other types of collections, to find whether or not there is a less disruptive alternative to foreclosure, and whether or not it is in the best interests of the government in general to foreclose the property and collect the tax.
Once the manager has made these determinations, the IRS must give written notice to the taxpayer that they intend to sell the property to satisfy a tax debt. The taxpayer usually has a right to appeal this collection decision through a Collection Due Process (CDP) Hearing in which other collection alternatives may be proposed by the taxpayer or a representative.
Because there is so much at stake, it is important to consult with a tax professional or attorney immediately if a home foreclosure is threatened by the IRS. Keep in mind, there is often a legal alternative to foreclosure and legal procedures may be available to prevent the loss of the residence.
The IRS often chooses to file an action in Federal District Court to foreclosure tax liens on homes. There are many reasons the IRS may choose to do so. These include, to obtain a Court order. Although the IRS has the authority to foreclose its lien on a home without Court order, it is helpful to use a court proceeding to sort out competing claims to the property and determine whether or not the taxpayer actually owns the property that is being foreclosed. Additionally, legal disputes over the property and the priority interests of other creditors may be resolved in such a court proceeding.