Defending Against IRS Liens and Levy of the Family Home in California: Protecting Your Most Valuable Asset

When facing financial difficulties, the last thing anyone wants to contend with is the threat of losing their family home to an IRS lien or levy. Unfortunately, this is a reality that some Californians may face when they owe substantial back taxes. The IRS has powerful tools at its disposal to collect unpaid taxes, including placing liens on property and, in extreme cases, levying (or seizing) the family home. However, there are legal defenses available, and with the right approach, it is possible to protect your home. Understanding these defenses, including challenging a nominee designation, can be crucial in safeguarding your most valuable asset.

Understanding IRS Liens and Levies

An IRS lien is a legal claim against your property, including your home, when you fail to pay a tax debt. The lien attaches to all your assets, including real estate, and gives the IRS a priority claim over other creditors. While a lien does not immediately result in the sale of your property, it can make it difficult to sell or refinance your home.

A levy, on the other hand, is a more severe action where the IRS actually seizes your property to satisfy a tax debt. Before the IRS can levy your home, it must send a series of notices, including a final notice of intent to levy and a notice of your right to a hearing. If you do not respond or resolve the debt, the IRS can proceed with the levy and sell your home to satisfy the tax debt.

Defending Against an IRS Lien or Levy on Your Home

Defending against an IRS lien or levy on your family home requires a proactive and informed approach. Here are some key strategies:

1. Seek a Collection Due Process (CDP) Hearing: After receiving a final notice of intent to levy, you have the right to request a CDP hearing within 30 days. This hearing gives you an opportunity to challenge the levy and negotiate with the IRS. You can propose alternative resolutions, such as an installment agreement, offer in compromise, or currently not collectible status, to avoid losing your home.

2. Prove Financial Hardship: The IRS is not in the business of making taxpayers homeless, and they will consider your financial situation when deciding whether to levy your home. If you can demonstrate that the levy would cause significant financial hardship, the IRS may decide not to proceed with the levy or may agree to a more manageable payment plan.

3. Challenge the Amount Owed: If you believe the IRS has made an error in calculating your tax liability, you can challenge the amount owed. This might involve proving that you have already paid some or all of the debt, that you qualify for certain deductions or credits, or that the IRS has incorrectly assessed penalties or interest.

4. File for Bankruptcy: In some cases, filing for bankruptcy can provide temporary relief from an IRS levy. While bankruptcy can stop a levy in its tracks, it is not a permanent solution and may not discharge all tax debts. However, it can give you time to negotiate with the IRS or restructure your finances.

5. Negotiate with the IRS: The IRS is often willing to negotiate payment plans or settlements, especially if the alternative is seizing and selling your home. Engaging with the IRS early and presenting a reasonable plan to pay your debt can help you avoid more drastic measures like a levy.

Challenging Nominee Designation

One particularly complex situation arises when the IRS designates a nominee in relation to a tax debt. A nominee is someone or something the IRS believes is holding property on behalf of the taxpayer to avoid paying the tax debt. For example, if the IRS suspects that you have transferred ownership of your home to a family member or a trust to shield it from tax collection, they may designate that person or entity as a nominee and pursue the property as though it were still yours.

Challenging a nominee designation can be difficult, but it is possible with the right legal strategy:

1. Prove Legitimate Ownership Transfer: If you can demonstrate that the transfer of the property was legitimate and not done to avoid paying taxes, you may be able to challenge the nominee designation. This could involve providing evidence of fair market value transactions, the recipient's actual use of the property, and other factors that show the transfer was not merely a sham to evade taxes.

2. Demonstrate Lack of Control: The IRS looks for signs that the original taxpayer still controls the property, even after the transfer. If you can show that you do not have control over the property—such as by providing evidence that you no longer reside there, do not pay the bills, or have no decision-making authority regarding the property—you may weaken the IRS’s nominee claim.

3. File a Quiet Title Action: In some cases, you may need to file a quiet title action in state court to clear the nominee designation and remove the IRS lien from the property. This legal action asks the court to determine the true ownership of the property and can be a critical step in defending against a nominee designation.

Conclusion: Proactive Defense is Key

Facing an IRS lien or levy on your family home in California is a daunting experience, but it is not without hope. By understanding your rights and taking proactive steps, you can defend against these actions and protect your most valuable asset. Whether it involves negotiating with the IRS, proving financial hardship, or challenging a nominee designation, it is crucial to act quickly and with the guidance of experienced legal counsel. With the right strategy, you can navigate the complexities of IRS collection efforts and safeguard your family home.