It is never pleasant to owe a debt you cannot pay. There is no doubt, however, that if you must owe a debt, prefer any creditor over IRS. IRS is the worst creditor to have.
COLLECTION POWERS OF IRS VERSUS OTHER CREDITORS
|
CREDITOR RIGHTS |
IRS |
GEN’L CREDITOR |
| INVESTIGATION | IRS KNOWS ABOUT YOU FROM FILINGS; ADDRESS/ PROPERTY/ EMPLOYER/ BANK ACCOUNTS | LOAN APPLICATION USUALLY STALE – MUST SUE AND USE DISCOVERY |
| PRE-SUIT SUMMONS | YES, ENFORCED BY CONTEMPT & POTENTIAL JAIL TIME FOR REFUSAL TO COMPLY | NO |
| GENERAL TAX LIEN (SEC. 6321) | ARISES UPON ASSESSMENT OF TAX FOLLOWING NOTICE & DEMAND | NONE FOR UNSECURED CREDITOR, EXCEPT AS UNDER UCC |
| FRAUDULENT TRANSFERS & TRANSFEREES | PROTECTED & ALSO TRANSFEREE LIABILITY(Sec. 6901) | PROTECTED BUT NO STATUTORY TRANSFEREE LIABILITY |
| RECORDED DEBT OR FILE TAX LIEN (SEC. 6323(a)) | PROTECTS IRS AGAINST BONA-FIDE PURCHASE FOR VALUE | PROTECTS AGAINST THIRD PARTY BUYER |
| SIEZURE OF AUTOS OR OTHER PROPERTY IN PUBLIC SPACE | YES | YES, ON AUTO LOAN, NO. FOR OTHER DEBTS EXEMPTION IS $1,000 IN VALUE. (FS 225.25(1) |
| ADMINISTRATIVE LEVY ON BANK ACCOUNTS , CDS , OTHER FINANCIAL ACCOUNTS AND NON-NETOTIABLE INTANGIBLE ASSETS | YES, ADMINISTRATIVE LEVY WITH LETTER AFTER NOTICE OF INTENT TO LEVY AND NOTICE OF RIGHT TO CDP HEARING | NO, REQUIRES JUDGMENT |
| WAGES | YES, ABOVE EXEMPTED AMOUNTS (Pub. 1494) | NEED JUDGMENT / HOH WAGES EXEMPT FROM GARNISHMENT (FS 221.11) / GENERALLY UP TO 25% OF DISPOSABLE INCOME) |
| NEGOTIABLE INSTRUMENTS (E.G.BOND) | YES, BUT MUST TAKE PHYSICAL POSSESSION – CANNOT SIMPLY NOTIFY ISSUER OR MAKER | JUDGMENT REQUIRED |
| SIEZURE OF HOUSEHOLD ITEMS IN PRIVATE RESIDENCE | ON WRIT OF ENTRY FROMU.S. DIST. CT. (SUBJECT TO $6,250 EXEMPTION – Sec. 6334(a)(2) | REQUIRES JUDGMENT – SHERRIF EXECUTES WRIT OF GARNISHMENT |
| SIEZURE & SALE OF PRINCIPAL RESIDENCE(Sec. 6334(e)(1)) | FORECLOSURE OF TAX LIEN / ORDER FROM U.S. DISTRICT COURT NO HOMESTEAD PROTECTION (No, if owe less than $5001) | FORECLOSURE REQUIRED FOR MORTGAGEE/ EXEMPT HOMESTEAD FOR OTHER CREDITORS IN FL. |
| FORECLOSURE & SALE OF TENANTS BY ENTIRETY PROPERTY | YES, TO EXTENT OF TAX DEBTORS INTEREST | NO INFLORIDA–DEPENDS ON STATE LAW |
| LEVY ON AND SEIZURE OF BUSINESS ASSETS* | YES, WITH APPROVAL OF AREA DIRECTOR (Sec. 6334(e)(2)) (No, if owe less than $5001) (6334(a)(13)(A) | REQUIRES JUDGMENT – SHERRIF EXECUTES WRIT OF GARNISHMENT – NOT EXEMPT |
| GENERAL EXEMPTIONS FROM LEVY AND SEIZURE | LIMITED (Sec. 6334(a)) | FL – LIBERAL: E.G., SOC. SEC. / RETIREMENT / LIFE INS/ PREPAID COLLEGE FUNDS, ETC. |
| BANKRUPTCY WIPE OUT | YES, BUT FAR MORE LIMITED THAN FOR UNSECURED CREDITORS AND RECORDED TAX LIEN IS NOT RELEASED AS TO ASSETS OWNED ON DATE OF FILING. | YES, FOR UNSECURED CREDITORS. |
*Note: Levy is the administrative process of collecting unpaid taxes, after notice and demand, while seizure is the taking of physical custody by, for example, posting a notice on the business storefront and padlocking the doors. The above chart is general and intended to illustrate IRC collection powers. There are many exceptions, defenses and special rules. Read the statute, regulations and cases. The IRS Restructuring and Reform Act of 1998 provided more protection for taxpayers against IRS seizures which have become less common but still occur.
CONCLUSION:
Compared to other creditors, IRS can get after you far more quickly because it already knows a great deal about you, and, does not generally need a court order to begin discovering your unknown assets or collecting against your assets.
For these reasons you do not want to have IRS as a creditor. Despite all the publicity about Offers in Compromise, Installment Agreements and Collection Due Process Hearings, the best advice for dealing with an IRS debt is to borrow elsewhere and pay off IRS.
Copyright 2011 by Robert S. Steinberg, Esquire
All rights reserved
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