What happens to property seized by the IRS? Unfortunately, the IRS can sell property seized as a levy of property since it has the authority under IRC Section 6335 to sell seized personal and real property. However, the IRS must follow certain procedures before, during, and after the sale.
Read more about what happens to property seized by the IRS and how to get it back on IRS.gov
Generally, IRC Section 6335 requires the following before the sale of the taxpayer’s seized property:
- A notice of seizure was delivered to the owner of the property;
- A notice of sale be delivered to the owner and publicly made; and
- The sale takes place not less than ten (10) and no more than 40 days from the date of the notice of sale.
If the IRS fails to comply with the statutory requirements strictly, the sale of the seized property is void. However, there are several cases in which courts have upheld the sale under various theories despite the IRS’ failure to follow the statutory requirements. In these cases, the courts looked at the equities in determining whether the sale was valid.
Sale of the Seized Property
The IRS is given reasonably broad discretion in selling seized property under the statute. Its objective is to produce the highest proceeds from the sale, but if the IRS fails to exercise its discretion in a commercially reasonable manner the taxpayer has a basis for relief.
Indivisible vs Divisible Property
If the seized property to be sold is indivisible, the IRS must sell the entire property. If a divisible property is to be sold, it may be sold separately, in lots or groups, or in the aggregate.
Real and Personal Property
However, in cases where both real and personal property is offered for sale, the real property must be offered as separate items and the personal property as a group or separate items before being offered in the aggregate. In the case, McAndrews v. Belknap (141 F2d 111) the Court held that if the seized property is divisible, and the sale of a part thereof would realize an amount sufficient to pay the entire tax and expense, only so much of the divisible property should be sold as is necessary to raise the amount needed, and that all the property need not be sold on the same day.
There are guidelines that the IRS must comply with when selling seized property. For example, the IRS must not sell a seized property below its minimum bid price. Also, it must give the taxpayer an accounting of the amount received at the sale, such as the expenses of the sale (excluding the purchaser’s name), the amount received from the sale applied to the taxpayer’s tax liability, and the remaining balance of the taxpayer’s liability.
Redemption: After the Sale
A taxpayer whose property has been levied upon and seized may still redeem it; however, only under certain conditions. The taxpayer may redeem both real and personal property from levy at any time before its sale by paying the amount of taxes due with any expenses or costs connected to the seizure and contemplated sale. He must pay the amount of the tax due, and not merely the amount equal to the value of the seized property or the government’s interest in the property. Once paid, the IRS must restore the property to him, and all levy proceedings must cease.
It would be a different story once the sale has already occurred. The taxpayer is forever barred from his right to redeem his personal property once the sale occurs. For seized real property sold, the taxpayer, his heirs, executors or administrators, any person who has an interest in the property or a lien upon it, or any person on their behalf has strictly 180 days from the date of sale to redeem it by making a payment to the purchaser.