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Merlo
Merlo, Accountant
Category: Tax
Satisfied Customers: 9783
Experience:  25+ years tax consulting. Specializing in returns for US citizens living abroad
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Hello - There is a possibility that I may get audited for

Customer Question

Hello - There is a possibility that I may get audited for a past tax year and end up owing the IRS multi thousands of dollars. My only large asset is a sailboat (USCG documented vessel)I live on for which I paid $60,000. I want to protect this asset in case my nightmare comes to pass and the IRS goes after my asset. Can I do this by forming an LLC? Also, I am an independent contractor in the sales profession - would an LLC also benefit me taxwise? I thank you in advance for your assistance. I live in California.
Submitted: 5 years ago.
Category: Tax
Expert:  Merlo replied 5 years ago.

Hello Customer,

 

Unfortunately, moving your assets into an LLC or another person's name will not necessarily protect them from an IRS levy.

 

Even if the assets were transferred before the IRS filed the intent to levy, they may still be able to go after them as well because the IRS sees it that you made this person, corporation, or trust the nominee for this asset and they will still be able to pursue this asset. This may slow the IRS down from taking assets and can buy you some extra time to set up an agreement with the IRS to release a levy, but it will not eliminate them from going after the asset entirely.

 

On some assets, if you can prove to the IRS that the asset they are trying to seize would not be worth it for them to seize then the item can be claimed as exempt and the IRS will no longer go after that certain asset. Typically, you will have to prove that the effort it would take to sell the asset would actually cost more than the asset would eventually sell for. You can also get an asset to be claimed as exempt if you are able to show that the asset will prevent you from working. Many times the IRS may try to seize assets such as cars, trucks, tractors, etc, that may be required for you to do your job and earn money. If you can show the IRS collector that this asset is required for you to earn money, it is likely that you can get an exemption on that asset.

 

An LLC is a good tool to put an extra legal layer between you and general creditors, but it has no effect on stopping the IRS in going after your assets. You should instead try to find other ways to keep the assets such as claiming them as business necessities, etc.

 

 

Thank you.

 

Merlo, Accountant
Category: Tax
Satisfied Customers: 9783
Experience: 25+ years tax consulting. Specializing in returns for US citizens living abroad
Merlo and 2 other Tax Specialists are ready to help you
Customer: replied 5 years ago.
Merlo - Thank you for your succinct answer. Am I permitted to ask one more question? If so, here goes...As my boat is my primary residence and is currently worth (in today's market) about $50,000, could it be protected from levy? I believe there is some rule with the IRS that states that they won't levy the first $50,000 of a primary residence/ Or am I completely off base with this?
Cheers
Jon
Customer: replied 5 years ago.
Merlo - Thank you for your succinct answer. Am I permitted to ask one more question? If so, here goes...As my boat is my primary residence and is currently worth (in today's market) about $50,000, could it be protected from levy? I believe there is some rule with the IRS that states that they won't levy the first $50,000 of a primary residence/ Or am I completely off base with this?
Cheers
Jon



Expert:  Merlo replied 5 years ago.

Hello Customer,

 

I am sorry not to have responded sooner to your last question, but I was not in the forum at all yesterday.

 

As far as your boat is concerned, regardless of whether or not it is used as your primary residence, the IRS may still place a lien on the property. With a lien, if you tried to sell the boat, the proceeds of the sale would first be paid in full to the IRS.

 

The IRS is not actually allowed to "seize" your residence unless the tax bill you owe is $5,000 or more. There are no limitations as to the $50,000 exemption amount that you mentioned.

 

 

Thank you.

 

 

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