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Will the IRS Foreclose on my House if I Have Tax Problems?

Although there exists a misconception that the government will not foreclose on your home if you have IRS Tax Problems, this is never a safe assumption for taxpayers to make. Don’t believe me? A recent case involving a blind, elderly business owner with IRS tax debt underscores the point.

In United States v. Dracapoulos, a Northern California case, the IRS sued Peter Dracopoulos–an 82-year-old blind man who runs a bookstand–to foreclose tax liens attached to his house. Mr. Dracapoulos endured several hardships that interfered with his ability to timely file and pay his tax liabilities. Specifically, he “relies on a support network” to “write checks, shop for food, and address the needs of day-to-day life.” Additionally, he is unable to use a computer or handle his own financial documents, and his accountant who used to handle his tax matters died in the late 90s. Because of Mr. Dracapoulos’ multiple unpaid tax liabilities from 2002-2015, he incurred over $280,000 in penalties for a total of $430,309.64 owed.

Mr. Dracapoulos’s counsel spoke with an IRS revenue agent in 2018 regarding his outstanding liabilities. It was undisputed that the IRS revenue officer told Mr. Dracapoulos that the IRS would initiate a suit to foreclose on his tax liens, but that the agent would recommend a life estate so that Mr. Dracapoulos could live in his home until his death. However, the IRS transcript suggests more than a mere “recommendation.” Specifically, the transcript includes the plan to foreclose on Mr. Dracapoulos’s liens “with a life estate so the taxpayer will not be removed from his residence…There is sufficient equity to pay the balance due and return proceeds to his estate after his passing.”

In reliance on this representation by the IRS revenue agent, Mr. Dracapoulos–believing that his life estate in his home was secured–did not take steps to refinance his house to obtain equity, nor did he administratively appeal the assessments of tax liabilities, both of which he claims he would have done in the absence of the revenue agent’s promise of a life estate. Mr. Dracapoulos accordingly contended that the government is estopped from contesting his life estate in his primary residence. The government, however, countered by arguing that “the court had limited discretion to curtail the government’s ability to foreclose on property to obtain tax debts.” With respect to the aforementioned “promise” by the revenue agent, the government characterizes it as an offer for Mr. Dracapoulos to stay in his home so long as he fully pays his outstanding tax liabilities. Further, it contends that Mr. Dracapoulos’s “refusal to come to terms with the IRS during these negotiations cannot now bind the United States.”

Notwithstanding Mr. Dracapoulos’s blindness and correspondent hardships in taking care of his tax liabilities, the government was unwilling to concede that it is estopped from contesting Mr. Dracapoulos’s life estate. While it mentions that it does not “seek an order of sale [on Mr. Dracapoulos’s house] at this time,” its argument that the court has “limited discretion in curtailing its ability to foreclose” on Mr. Dracapoulos’s house is alarming from the perspective of taxpayers in general. If the government is willing to pursue the foreclosure of an elderly blind man’s home, it is likely never safe to assume that the government will not pursue foreclosure in connection with one’s IRS Tax Problems.

IRS Foreclosure: The Broader Perspective

The IRS may indeed initiate foreclosure if it deems it necessary to recover tax debts. While this may not always be the first course of action, the possibility exists, and it should not be overlooked. Various personal and financial factors can influence the IRS's decision to foreclose, including but not limited to the individual's age, physical condition, financial resources, and level of tax debt.

This case underscores that no-one is safe from the IRS’ desire for more cash. Especially considering Mr. Dracapoulos’s unfortunate personal circumstances and age, the government’s pursuance of this foreclosure underscores the importance of hiring a California Tax Litigation Lawyer to assist with your IRS Tax Problems and take necessary steps to avoid foreclosure on your home.

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