In a recent federal court case from the Western District of Washington, a U.S. District judge ordered that the principal residence or homestead of an elderly couple be sold, to help satisfy about $500,000 in delinquent I.R.S. taxes. U.S. v. Smith, U.S. Dist Ct., WD Washington 2016.

The I.R.S. doesn't seize and sell homesteads very often, but they have the right to do so under certain circumstances. First, the taxpayer must owe over $5,000.00.

Also, the sale of the principal residence must be approved by a judge in writing. At the hearing in front of the judge, the I.R.S. must prove that all procedures were followed; that the amount is actually due; and that there are no reasonable collection alternatives to collect the taxes. Internal Revenue Manuel  (01-07-2011), Seizure of a Residence/ Principal Residence.

In the Smith case, the husband, a former airline pilot, was 72 years old and apparently a tax protester. He claimed that he was not liable to pay income taxes. Also, apparently he had prepared and filed bogus liens against himself and his property, to try to demonstrate to the I.R.S. that there was no equity in the home. Mrs. Smith was 74 and earned her own income and apparently filed and paid her own taxes.

The Smiths argued that the home should not be sold because it was not Mrs. Smith's debt. The court held that the I.R.S tax was community debt, and that Mrs. Smith benefitted from the tax evasion, because the couple spent the tax monies elsewhere. So they lost on that argument.

Mrs. Smith also argued that the I.R.S. couldn't take the house because she didn't receive procedural protections such as a Notice of Deficiency. The court ruled that she wasn't entitled to such protections, as the tax assessments were only against Mr. Smith. The court also ruled that she wasn't entitled to innocent spouse relief. 

Mr. Smith also argued that Mrs. Smith failed to receive proper notice of the tax lien. The court shot him down on this one as well, holding that lack of notice does not invalidate a tax lien, and Smith didn't tell the court exactly what notice wasn't given, or why it would've changed the outcome.

In short, the court ruled that the I.R.S. won the case on all counts, the bogus liens were invalid, and that the home would be sold to satisfy the delinquent taxes.

Do you think this was the correct result, that the I.R.S. seized this old couple's home? Do you think the I.R.S. should be able to seize homes at all? Or if so, under what circumstances? Please leave your questions or comments below.

J Thomas Black
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Board Certified, Consumer Bankruptcy Law- Texas Board of Legal Specialization
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