Can the IRS or ODR take your vehicle to satisfy unpaid taxes?
by Adam Weiner
First, it is important to understand the difference between a tax lien and a levy. An IRS or Oregon Department of Revenue (ODR) tax lien is a formal public notice—to anyone who knows where to look—that you owe taxes. A lien attaches to your property and affects your rights to the property. When a tax lien i filed or recorded it can hurt your credit. A lien does NOT involve the direct taking of money or property from you. An IRS levy or ODR garnishment/seizure does involve their taking of your property—your real estate, personal property, or money owed to you. The most common ones by far are levies or garnishments on money owed to you by others—your paycheck being paid to you by your employer or money held in your bank or credit union accounts.
But beyond those, the IRS and ODR can also levy on or seize just about anything you own.
So, Can the IRS and ODR Seize My Car or Truck?
Yes, they can under certain conditions. Focusing for the sake of convenience on the IRS’s conditions:
According to the Internal Revenue Manual, the IRS may not make an “uneconomic levy.” This means that if it costs the IRS more to go through the levy process than what they’d get out of your vehicle, it can’t levy on it. If you owe a lender on the vehicle, your equity in the vehicle has to be enough (when subtracting sales related costs) to have money left over to pay towards your back taxes. Most people that have auto loans do not have any equity in their vehicle (i.e., they owe more money to the creditor than the bluebook value of their car). Thus, in most scenarios where there is a loan on a car, there is absolutely no chance that the IRS or ODR will seize the vehicle.
Also, the IRS cannot levy on a vehicle if that would create an economic hardship due to the financial condition of the taxpayer. Thus, if you need the vehicle to stay employed, to go to important doctor appointments, or to get your kids to school, the IRS would probably not seize it.
For practical reasons, the IRS is not likely to seize a vehicle that would not put much into the IRS’s pocket, after accounting for the effort and costs involved and the statistics confirm that it is highly unlikely that the IRS will seize any vehicles. According to the IRS annual table of Delinquent Collection Activities, in all of 2013 it made only 547 seizures of property, which includes the entire country. Contrast that with 602,005 federal tax liens filed during that year. And 1,855,095 levies requested on third parties—primarily garnishments of paychecks and bank accounts. The IRS is going after the easy money instead of using the much more complicated process of grabbing and selling tangible assets.
Preventing the Risk of a Vehicle Levy:
Nevertheless, having your vehicle seized is still a possibility, especially if you haven’t been cooperating closely with the IRS or ODR. For example, if you’ve not been reading the notices they’ve been sending you, or if you have been repeatedly not complying with their requests to contact them to pay your tax debts, your vehicle is at greater risk. Indeed the best strategy in dealing with the IRS and ODR regarding past due taxes in lieu of (or before) a bankruptcy filing is to contact them after you receive the first notice and try to work out an affordable payment plan. The IRS is actually very easy to deal with in terms of setting up an affordable payment plan. And the IRS even has something called “currently uncollectable” status, which means that if you can’t afford to make any payments right now to the IRS based on your income, expenses, and IRS allowable expenses, then you will not need to make any payments to the IRS for a while and during this time the IRS will not take any collection against you.
Also, a Chapter 7 or Chapter 13 bankruptcy filing will immediately stop the IRS and the ODR from levying on your vehicle, and from taking any other action to collect (including paycheck garnishments, bank levies, and from recording liens).
Henry and Susan owe a combined $15,000 to the IRS and the ODR for personal income taxes, interest, and penalties for 2009 when Harry tried to start a business after he had been laid off and then couldn’t find a job during the depths of the Great Recession. The business made money, but not enough to sustain their family. During that year he paid no quarterly estimated taxes and Susan even cut back on her employer’s tax withholding to try to make ends meet. Henry did find a job in 2010, but because it paid significantly less than his prior job their family has been struggling financially ever since.
They filed their 2009 tax returns on time, but because they owe so many other creditors with debts accrued during the business venture they have been trying to lay low from the IRS and ODR. But now Harry and Susan have just received very aggressive sounding notices from both taxing agencies threatening to, among other things, levy on and seize their vehicles, so they are extremely concerned about losing their vehicles.
They go to see a bankruptcy attorney even though they understood that bankruptcy can’t legally write off (“discharge”) income taxes. They are very pleasantly surprised that bankruptcy can indeed discharge an income tax debt if it meets certain (mostly time-based) conditions, and that their 2009 taxes meet those conditions.
So on their behalf the attorney files a Chapter 7 case. That immediately prevents the IRS and the ODR from taking any further collection action against them or any of their assets, including preventing levies on their vehicles. And then within less than 4 months, that $15,000 in income taxes is discharged, along with most of their other debts. This means that the tax is legally no longer owed, and cannot ever be collected by the IRS and the ODR. This huge burden is lifted from them.
The above information and example is not meant to give specific legal advice. The information in this blog and example is meant to give general information. Indeed the laws are always changing and everybody’s situation is unique. As with any legal issue involving potential bankruptcy, taxes, etc., it is always recommended that an individual meet with an experienced Portland bankruptcy lawyer to discuss their unique situation. Attorney, Adam M. Weiner, is an experienced Portland bankruptcy attorney and is always interested in helping empower people to gain more control over their financial lives (through knowledge, information, debt settlement, and, if appropriate, a chapter 7 or chapter 13 filing). And the result is reduced stress so individuals can more easily achieve the life that they desire.