If the IRS has categorized you as "currently not collectible" then you should not be overly concerned about the IRS seizing your home at this time. This is typically a last resort for the Government and requires many levels of IRS approval. However, there are instances where the IRS deems it necessary to seize a residence or to sue the taxpayer in federal district court to reduce the tax assessments to judgment and to foreclose its lien on the property. Typically, this becomes the case if the taxpayer has some assets or income and refuses to work with the IRS in establishing a payment plan or other type of resolution for the unpaid tax. Your best bet is to continue to respond to IRS's requests and correspondence if necessary. If you have some equity in the home but less than 20%, and you have little or no other property, it might be feasible for you to have a professional help you prepare and file an offer in compromise with the IRS. If the IRS accepts your offer in compromise and you fulfill the terms of the offer, the IRS will typically release the federal tax liens within 30 days of your full payment of the offer. Good luck.
Typically, the IRS does not actually seize your primary residence. The IRS will file a federal tax lien which will make it impossible for you to sell the property without paying the IRS. I am concerned that you keep using the term "we". Are both owners of the property subject to the civil penalty?
Frankly, you should have retained a tax lawyer quite some time ago, but it is not too late to get some help in this matter.
If you do not like this answer or disagree, please look at one of the other answers provided. It is not necessary for you to try prove this answer is "wrong" or something with which you do not agree. This is a free service for you based on limited facts. Nevertheless, many times you need to consult an attorney with the details to get actual advice specific to your concerns. Do not put too many details in your questions or comments because this makes the information public and could hurt you. Government Regulations contained in IRS Circular 230 regulate written communications about Federal tax matters, including e-mail, between us and our clients. This is another attempt by the government to limit your rights and to extend the control of government over individuals and businesses. Nevertheless, such communications are either opinions or other written communications. This is not an opinion. It is other written communication and was not written to be relied upon, by itself, to avoid any tax penalties. In order to receive assurances of protection from tax penalties from a written communication, you should get an opinion letter. If you would like to discuss an opinion letter relating to any matter, please contact me and I will explain what is involved and what it will cost.
The previous answers are accurate. I would add a concern about the source of "They" when you refer that "They" are telling you that they can seize your home. Are you sure this is the IRS telling you this or some 3rd party attempting to scare you. Often third party vendors send letters in reaction to the recording of IRS liens to secure your business. I would suggest getting a consultation with a tax attorney and show them the communications so they can help you interpret them to resolve the apparent conflict in messages.
Marty Davidoff, email@example.com, 732-274-1600. This answer is provided for general information only. You should seek advice from an attorney or tax professional.