What is The Difference Between IRS Asset Seizure and Forfeiture?

Did you know that in 2022 alone, the IRS Criminal Investigation (CI) division seized over $7.9 billion in assets, including real estate, vehicles, and financial accounts? While many taxpayers associate IRS enforcement with tax liens and wage garnishments, asset seizures, and forfeitures are among the agency’s most aggressive collection tools.

However, IRS seizure and forfeiture are not the same. A seizure occurs when the IRS takes property to settle unpaid tax debt, while forfeiture involves the government confiscating assets tied to alleged criminal activity—often without the need for a conviction. Understanding the difference between these actions is important for taxpayers, business owners, and anyone at risk of IRS enforcement. This article breaks down what each process entails, how they differ, and how to protect your assets from government seizure.

What Is an IRS Asset Seizure?

When a taxpayer fails to pay their tax debt, the IRS has the authority to enforce collection through asset seizure. While many people are familiar with tax liens and IRS wage garnishments, seizure is one of the most severe enforcement actions the IRS can take. Unlike a lien, which simply secures the government’s interest in a taxpayer’s property, a legal seizure of assets involves physically taking and selling a taxpayer’s property to satisfy their outstanding tax liability.

Taxpayers who ignore repeated IRS notices or fail to negotiate a payment plan may risk losing their bank accounts, vehicles, business equipment, or even real estate. While IRS seizure is primarily a tool for collecting unpaid taxes, it is distinct from forfeiture, which the government uses to confiscate assets linked to illegal activity.

How Does The Asset Seizure Work?

The IRS does not immediately resort to seizure of property when a taxpayer has unpaid tax debt. Instead, the agency follows a structured enforcement process, giving the taxpayer multiple opportunities to resolve the issue before taking drastic action.

1. Tax Debt Accumulation

A taxpayer incurs a tax debt when they fail to pay the amount owed on time. This can happen due to:

• Unpaid income taxes

• Payroll tax liabilities for businesses

• Penalties and interest accumulating on prior debts

Once the debt is recorded, the IRS begins the collection process.

2. IRS Notices and Demand for Payment

The IRS first sends a Notice and Demand for Payment, informing the taxpayer of the amount due. If the taxpayer ignores this notice or fails to set up a payment arrangement, the IRS escalates its collection efforts. A taxpayer will typically receive several notices, including:

• CP14 Notice: First notice of unpaid taxes

• CP501 and CP503 Notices: Reminder notices of an outstanding balance

• CP504 Notice: Final warning before enforcement actions

3. Final Notice of Intent to Levy and Right to a Hearing

Before seizing any property, the IRS is legally required to send a Final Notice of Intent to Levy and Notice of Your Right to a Hearing at least 30 days in advance. This notice gives the taxpayer one last opportunity to:

• Pay the balance in full

• Set up a IRS payment plan or installment agreement

• Submit an Offer in Compromise (a settlement for less than the full amount)

• Request a Collection Due Process (CDP) hearing to dispute the levy

If the taxpayer does not take action within 30 days, the IRS will proceed with asset seizure. Read our blog to know more about what assets can the IRS seize? 

4. Selling Seized Assets

Once assets are seized, the IRS has the authority to sell them at public auctions. The proceeds from the sale are applied to the tax debt. If the amount collected is more than what the taxpayer owes, the IRS refunds the difference. However, if the sale does not cover the full debt, the taxpayer is still responsible for the remaining balance.

If you have received an IRS Final Notice of Intent to Levy, time is running out to protect your property. J. David Tax Law has helped thousands of taxpayers across all 50 states recover IRS seized assets and negotiate relief with the IRS. Call our experienced tax attorneys at (888) 342-9436 now for a free consultation.

What Is Asset Forfeiture?

Many taxpayers mistakenly believe that asset forfeiture and asset seizure are interchangeable, but they serve entirely different legal purposes. Asset seizure is a tool the IRS uses to collect unpaid taxes, allowing the agency to take property and liquidate it to satisfy outstanding tax debt. In contrast, forfeiture in law refers to the government’s power to confiscate property suspected of being involved in criminal activity, regardless of whether the owner has been convicted of a crime. 

Types of Forfeiture

The government enforces two primary types of forfeiture: civil forfeiture and criminal forfeiture. While both allow authorities to confiscate property, they differ in their legal standards, requirements, and the burden of proof placed on the property owner.

1.Civil Forfeiture

Civil forfeiture allows the government to seize property without charging the owner with a crime. It is based on the legal principle that property itself can be “guilty” of being involved in illegal activity, even if the owner is never arrested or convicted. This type of forfeiture is widely used by federal and state agencies in cases where authorities suspect that assets were acquired through or used for criminal purposes.

Key Aspects of Civil Asset Forfeiture:

• The government can confiscate cash, bank accounts, real estate, vehicles, and other valuable assets if they are believed to be linked to criminal activity.

• It is commonly used in cases involving money laundering, fraud, or structuring financial transactions to evade reporting requirements.

• Civil forfeiture is authorized under status 18 U.S.C. § 981, which gives federal agencies the power to seize assets tied to unlawful activity.

• The burden of proof is shifted onto the property owner, meaning the owner must prove their assets were not involved in a crime to get them back.

• The government automatically keeps the property if the owner does not challenge the forfeiture in time.

Example of Civil Forfeiture:

A small business owner regularly deposits cash in amounts just under the $10,000 threshold that triggers a bank’s reporting requirement. The IRS suspects the owner is engaging in structuring, a practice used to avoid detection of illicit funds, and seizes the business’s bank account under civil asset forfeiture laws. Even though no criminal charges are filed, the owner must go to court and prove the money was earned legally to reclaim it.

2. Criminal Forfeiture

Criminal forfeiture is directly tied to a criminal conviction. Unlike civil asset forfeiture, where property is seized based on suspicion alone, criminal forfeiture only occurs after a defendant has been found guilty of a crime. It is intended to punish criminals by taking away the assets they gained or used in illegal activity.

Key Aspects of Criminal Forfeiture:

• The government must obtain a criminal conviction before permanently seizing property.

• It is used in cases involving tax fraud, drug trafficking, racketeering, embezzlement, and organized crime.

• Property subject to criminal forfeiture often includes seized money, vehicles, real estate, and business assets acquired or used in the crime.

• Criminal forfeiture cases are pursued as part of criminal proceedings, meaning the defendant faces both criminal penalties and loss of assets.

Example of Criminal Forfeiture:

A drug trafficker is convicted in federal court for running a large-scale narcotics operation. As part of the conviction, the government seizes his property, multiple cars, and bank accounts that were funded by drug proceeds. Since the conviction proves the assets were obtained illegally, they are forfeited permanently under criminal forfeiture laws.

Major Differences Between Civil and Criminal Forfeiture

Feature	Civil Forfeiture	Criminal Forfeiture
Requires a Criminal Conviction?	No	Yes
Who is Charged?	The property itself is considered guilty	The person is convicted of a crime
Burden of Proof	Property owner must prove assets were legally obtained	Government must prove the defendant is guilty beyond a reasonable doubt
Legal Process	Seizing agency handles the case, often through administrative forfeiture	Part of a criminal prosecution in a court of law
Commonly Used For	Money laundering, fraud, structuring, tax evasion	Drug trafficking, tax fraud, embezzlement, organized crime
Potential Consequences	Permanent loss of property, no criminal record	Loss of property plus criminal penalties such as fines and imprisonment

While criminal forfeiture targets individuals convicted of serious crimes, civil forfeiture procedural due process remains controversial because it allows government-seized property to be confiscated without ever charging the owner with a crime. This has led to debates about forfeiture law reform and whether stronger protections should be in place to prevent system abuse.

Legal Protections Against Asset Forfeiture

Both civil forfeiture and criminal forfeiture allow the government to seize assets, but property owners have legal rights to challenge these actions. Understanding forfeiture law and the available defenses can help individuals protect their seized money, real estate, bank accounts, and other assets from permanent loss.

Protections Against Civil Forfeiture

• Under civil forfeiture procedural due process, the property owner must prove the assets were not involved in illegal activity.

• Owners can argue that the government lacks sufficient evidence under 18 USC 981 to justify the seizure.

• If the owner did not know or participate in the alleged crime, they can contest civil confiscation.

• Under civil seizure forfeiture laws, property owners must receive notice and an opportunity to challenge the forfeiture in court.

Protections Against Criminal Forfeiture

• If the defendant proves their innocence, the property cannot be forfeited.

• Defendants can present evidence that the seized money or assets were legitimately acquired.

• In some cases, defendants may work with a forfeiture attorney to protect certain assets from forfeiture of property.

• Hiring an asset forfeiture attorney can help individuals fight unjust property seizures and build a strong legal defense.

Facing Asset Forfeiture? Work with an A+ BBB Accredited tax law firm with over four decades of collective experience. Contact J David Tax Law today!

Final Thoughts 

Both IRS seizure and forfeiture can lead to the loss of bank accounts, real estate, business assets, and other valuable property. While IRS asset seizure is used to collect unpaid taxes, forfeiture can result in permanent asset loss, even if no criminal charges are filed. Understanding the differences, knowing your legal rights, and acting quickly are key to protecting your assets from government seizure.