My friend, let’s call him Jim, got burned by his business partners and is now in DEEP trouble with the IRS. That’s the very short story.
Jim has/had a heavy equipment trailer that still has a lein against it from the finance company. I am buying this trailer from him. The finance company declined to re-finance the loan, so, I have been making the payments; the loan is still in Jim’s name.
Can or will the IRS seize this property even though there is a lein? What steps can I or should I take to protect my investment? Right now I’m not in a position to pay off the note and get it titled in my name.
My advice in all situations like this is to consult with your CPA and/or an attorney specializing in tax matters. And to do so very quickly. I would not recommend wasting time obtaining free advice on the Internet. I am not your attorney, I am not licensed in your jurisdiction, and you are not my client.
That said,
You may find the following wiki on Tax Liens to be useful. From the wiki,
Again, you really need to talk to either a CPA or a tax attorney NOW.
It seems likely that the lein prevents transfer of ownership. Merely having an agreement with Jim to make the payments on his behalf does not give you ownership.
I cannot speak to the ability of the IRS to seize leined property. Presumably it happens all the time and there is some normal process with dealing with the leinholder’s claim.
-It may be that the leined property cannot be seized by the IRS simply becuase it may not belong to Jim as long as it has a lein on it.
-Or maybe the IRS would only be able to extract the excess of the liquidation price and the remaining amount due on the note, if any.
Also, INAL in any way, shape, form, or capacity.
I am not your friendly, local tax representative. I do not represent you. I don’t even know you. For all you know, I’m some 12 year old who took a break for World of Warcraft to give fake tax advice.
That said:
We handle this stuff for our clients every single day. The reality is that while the IRS can most certainly seize property or throw somebody in jail, they usually don’t. 20 years ago? Hell yeah- they went crazy seizing stuff, but nowadays? Not so much. In 2009, there were something like 600 seizures in the entire country. The real concern for anyone financially linked to a big tax debt is levy of cash sitting in bank accounts, receivables for a business, or wages for an employee. Oh, and in 2009 there were 3.5 million levies. See? They aren’t terribly concerned with taking anybody’s stuff.
Further to the point, assuming your friend still owes the bank on the trailer’s original loan: even if they did want to seize this trailer thing, the reality is that if there is no equity in it, the IRS isn’t going to seize it. See Internal Revenue Code 6331(f), which talks about the IRS not making any “uneconomical levies.”
Naturally, there is a sliding scale here that is based on how much your friend owes the IRS. In this business, I’ve learned that one man’s “deep trouble” with the IRS is absolutely nominal to someone else. Does he owe $10k? $100k? $1,000,000? Is he a tax protester or just a contractor who didn’t file or pay for a while? These are all things he needs to discuss with his representative because they can dramatically effect the IRS’ approach to him. If he doesn’t have a representative, you’re welcome to PM me and I’ll send you a link to an organization that helps folks find local Enrolled Agents and CPAs who deal with this stuff (while we are members of this group, there are hundreds of others, too).
Talk to the lien holder. They may be willing to transfer ownership to you as a better risk. Once it is in your name, they won’t have to fight the IRS for it.
I’d just again like to emphasize that it’s tremendously unlikely that anyone would have to fight the IRS for anything other than the contents of his buddy’s bank account.
SO basically you are paying off the trailer, reducing the lein. That makes the equity larger.
Eventually, you actually buy the trailer. Or not. I assume if he is in this much trouble, it is not just the IRS he owes.
If you don’t buy it, sooner or later someone he does owe money to will see the value of trying to take the trailer; have it sold and pay the original lien first, then themselves second. I believe you can do this in most jurisdictions. Then you are SOL. you have just made your friend’s debt smaller. You have no trailer.
If you do buy it, be sure the payments you make today are documented. Selling an item below market value may be percieved as trying to escape bankruptcy consequences. Transactions in anticipation of bankruptcy - giving one creditor a “sweetheart deal” over the others can be reversed by the bankruptcy judge. (The old trick, “I’m going bankrupt so buy my car for $1 before I go under so the bank doesn’t get it.”) IIRC, in Canada, for example, they can go back up to 6 months looking for this. Buying something for several months’ payments less than market value could be seen as such, especially if you are a friend. Document that the prior payments are included.
Regardless, making someone else’s payments with no contractual obligation on their part is good friendship, but poor business.