Yes, the IRS can seize a financed car for unpaid taxes, but it is rare and unlikely to happen in most cases. The IRS has the legal authority to seize property, including vehicles, to satisfy a tax debt. However, there are several factors that determine whether the IRS will actually seize a car, especially if it is financed.
Factors that Determine if the IRS Will Seize a Financed Car
The IRS considers several factors before deciding to seize a vehicle, including:
The value of the car and the amount of equity you have in it. If you owe more on the car than it’s worth, the IRS is unlikely to seize it because there would be no money left over to apply to your tax debt after the lender is paid off.
Whether the car is necessary for you to earn a living. The IRS generally won’t seize a car that you need to get to work or for other essential purposes.
The cost to the IRS of seizing and selling the car. If the cost of the seizure process would be more than the IRS could get from selling the car, they may decide not to seize it.
How the IRS Seizes Property
If the IRS decides to seize your car, they will first send you a notice and demand for payment. If you don’t pay or make arrangements to pay, the IRS can issue a levy, which is a legal seizure of your property. The IRS can seize and sell your car to pay your tax debt.
However, the IRS is required to release a levy if it determines that the levy is creating an economic hardship by preventing you from meeting basic, reasonable living expenses. The IRS also cannot seize property if the value of the property is less than the IRS’s administrative expenses of the seizure and sale.
In most cases, the IRS will try to work with you to set up a payment plan or other arrangement before seizing your property. They may also declare your account as “currently not collectible” if you can demonstrate that you don’t have the ability to pay.