Understanding What the IRS Cannot Touch When You Owe Back Taxes

The idea of owing back taxes can be stressful. However, there are several important legal protections that can help you prevent the IRS from touching certain assets. This article will explore the various ways in which the IRS cannot impose a lien on your property, and the steps you can take to protect your assets.

What Can You Do to Prevent the IRS from Touching Anything?

The question should be reversed to 'What can you do to prevent the IRS from touching anything?' This highlights the proactive approach one can take to protect their assets. Generally, if you can access your assets, the IRS can also access them. This article focuses on how you can safeguard your property from the IRS.

Retirement Funds Are Safe from the IRS

The IRS cannot touch your qualified retirement plan funds. For example, 401k and profit-sharing plans are protected. The IRS can only ask for funds to be removed from the account but cannot require it without a court order.

Assets Outside the USA Can Be Protected, But with Caution

One very easy way to protect assets that can be held outside the USA is to do so. However, this method comes with serious warnings. If the IRS finds out, they can become extremely aggressive, as they did with Boris Johnson, the former UK Foreign Secretary. Johnson was caught by the IRS for the sale of his London home, despite not living in the USA.

US tax law is completely non-enforceable outside the USA. The US can issue tax demands but cannot collect these from a foreign nation. Courts will ignore cases, and IRS officials will be sent away. However, it is important to realize that the IRS will remember these actions and will continue to pursue your assets in the future.

Child Support and Necessities Cannot Be Seized by the IRS

The IRS cannot touch child support payments, either those paid to the recipient or those set aside by the payor. Clothing, tools, and other necessary supplies for work or school are also exempt. However, this is open to broad interpretation. For instance, if public transportation is available and convenient, the IRS could argue that personal transportation is not necessary.

Protection for Self-Employed Individuals

For self-employed individuals, the IRS cannot seize assets that generate income for you. For example, if you own a limousine service and use the limousine for work, they cannot seize it. However, you must prove to them that this asset generates necessary income.

Social Security Payments and Essentials

The IRS can seize up to 85% of Social Security payments or 85% of a surviving spouse's Social Security payments. The remaining 15% cannot be seized unless necessary. Assets with no real value, that cannot be converted to cash, such as a favorite rocking chair, are also protected.

Conclusion

Understanding the legal protections available can significantly help in protecting your assets from the IRS. By staying knowledgeable about these protections, you can take a proactive approach to manage your back taxes and ensure that essential personal and business assets are safeguarded.