Can I Sell My Home If I Owe Back Taxes?
If you owe back taxes to the Internal Revenue Service (IRS), you’ve likely received notices from the federal agency, warning of potential fines or further action. If you’ve owed taxes for a while, the IRS has probably escalated the nature and tone of their warnings. They may be threatening to seize your assets or place liens on your property. If you find yourself backed into this kind of corner, you might be exploring your options.
A common question among taxpayers facing a property lien is whether or not they can transfer the property to keep it safe from the IRS. For example:
Can I transfer the deed on my property to my son to protect it from IRS claims? Can I gift a property to my grandaughter to keep it safe from a lien?
Many taxpayers consider the idea of property transfer as an act of defence, guarding against the long reach of the IRS. The government agency has a reputation for persistence, after all, and with its recent boost in funding, more and more taxpayers will be faced with the same question—if I owe back taxes and the IRS threatens to seize my assets, can I transfer my property to keep it safe?
Let’s take a closer look at this scenario, the risks involved and your options. If you owe back taxes, it’s understandable that you want to reach for solutions. But before you leap to property transfer, it’s important to understand the risks you could face.
Not an Easy Fix
Unfortunately, the IRS is not easily deterred. They know that taxpayers will consider transferring the deed of a property to avoid a federal tax lien or tax levy. To pursue those who owe back taxes, they will do all they can to discourage and even prevent a transfer from happening.
In other words, the IRS is onto this tactic. The agency is prepared to aggressively go after those who avoid asset seizure. If you’re considering transferring a property, it’s important to be aware of the obstacles and penalties you could face.
Let’s take a closer look at some of the tools the IRS uses to prevent property transfers and/or penalize taxpayers directly. You might be surprised to learn that by transferring the deed of your property, you could be criminally charged with tax evasion.
Federal and State Statutes
With the Federal Debt Collection Procedures Act (FDCPA) of 1990, the IRS was given clear guidelines to attack a property transfer, where it is identified as “fraudulent”. If you owe back taxes and transfer a property to a third party, it will be considered suspicious if certain criteria are also present.
Red flags for the IRS include situations where:
- the amount paid for the property is considerably less than the market value
- the transfer of the property results in the taxpayer’s insolvency
In other words, if you might have been able to pay your taxes by selling the property for a fair value, but now you no longer own the property and haven’t acquired enough money to pay your back taxes, the government will likely consider your situation fraudulent.
Under the FDCPA, the IRS uses several factors to determine if you intend to avoid taxes through property transfer. First, it looks at the person who bought the property from you. If they are considered an “insider”—a relative, friend or someone you know, it is a mark against you.
They will also look at the timing of the transfer—was it made after you were threatened with property seizure or legal proceedings? Finally, they will examine the transfer itself. Was it concealed? Did you fairly disclose all you should about the sale of the property?
In addition to the FDCPA, many states have their own version of this statute. If you owe back taxes and live in a state with one of these statutes, the odds are higher that you’ll face a lawsuit, intended to prevent the transfer of your property.
As you can see, the IRS has no intention of looking the other way, when it suspects you are avoiding taxes. If you owe back taxes and the IRS considers the sale of your property fraudulent, it can seek a court order to set aside the transfer, or it can go directly after you, with charges of criminal liability.
Even more pressing than a court case that might prevent the transfer of a property, are the potential legal consequences. When you owe back taxes and attempt to transfer your property to avoid seizure, you could be subject to a long list of criminal statutes, as outlined in the Internal Revenue Code.
For example, sections of the Code make it a felony to attempt to evade penalties or any taxes owed. They also make it a felony to hide your efforts to do so. One section makes it illegal to obstruct the ability of the administration of the laws of the Code. In other words, if you evade taxes, try to hide your efforts or obstruct the IRS in any way, you could be criminally liable.
While the IRS doesn’t always pursue criminal tax evasion charges, when it does, the penalties are steep. Taxpayers often have to repay the taxes they owe, alongside a hefty fraud penalty and the possibility of up to five years in prison. In short, transferring property isn’t worth the risk.
A Better Option
If you owe back taxes and find your mind taking inventory of the ways you might avoid the reach of the IRS, you’re not alone. Plenty of taxpayers wonder how they can keep their assets safe, after receiving warnings of liens or levies from the IRS.
As you can see, the IRS has an entire toolkit devised to stop you. As a result, the decision to transfer a property to a friend or family member is an uncertain way to avoid trouble.
A far better decision is to work closely with tax professionals. Tax experts have experience in all aspects of communicating and negotiating with the IRS. If you owe back taxes and the IRS is threatening to seize your assets or properties, you need the right expertise on your side.
A professional team will take the time to understand your story and your tax history. They will review the communication you have received from the IRS and step in to handle it, going forward. Not only will this put a stop to IRS communication, which can often feel like harassment, but they can even negotiate a settlement on your behalf.
While it may be tempting to transfer a property, as a quick solution to tax problems, it isn’t the quick fix you might expect. In fact, it can quickly land you in more trouble with the IRS. If you owe back taxes, it’s important to seek professional help the minute you feel uncomfortable with the communication you’re receiving from the IRS.
At Franskoviak Tax Solutions, we have helped thousands of clients with taxes and tax problems for more than 30 years. We provide comprehensive tax services with first-class expertise and a personalized, boutique-style approach. Speak to our team about personal and business taxes, IRS tax deadlines, payroll taxes, IRS tax relief and tax problems such as IRS tax notifications, IRS threats to place liens or levies on assets, delinquent taxes and more.
Start with a free consultation—if you owe back taxes and worry about your property, we’re here to help you understand and navigate your scenario, and where required, negotiate with the IRS on your behalf.