Legal Question in Real Estate Law in California

If you were "added to title" while mom and dad were alive, more likely than not they made you a joint tenant. A lot of parents do that to avoid probate, but while avoiding probate, they create tax problems. If they made you a joint tenant, you would become the sole owner upon their death - not by inheritance, but by the way joint tenancy works.

So, the house is not mom and dad's now - it is yours. And you didn't inherit it. But that doesn't answer the questions about the IRS demands.

First, you have to start with the issue of why the IRS wants $20,000 from you. Their demand letters are usually pretty good at identifying the IRC code sections underlying their demand and how they calculated the amount due. My hunch is that the tax claim has something to do with unpaid gift tax. Putting you "on title" as a 1/3 or 1/2 joint tenant without charging you fair market value (or anything) for that part interest is a gift, and large gifts are subject to tax. The tax, if any is due, should be paid by the donor, but if the tax is not paid during the donor's lifetime, the IRS can look elsewhere for payment. Although you didn't, strictly speaking, inherit the house, you probably inherited some other assets, and claims against your parents' estates, such as unpaid gift taxes, are liabilities of the estates, and must be paid from the estates before the heirs take anything.

Yes, the IRS can attach, levy upon, and sell the house in many such situations. In your individual case, one cannot say whether the IRS's theories, facts, calculations, etc., are correct. They make lots of assumptions about facts, usually in the government's favor. It is up to the dunned taxpayer to review the demand and, when appropriate, make a well-informed opposition before the axe falls.

With this much money at stake, and the possibility of an inefficient tax sale of your property, it is high time to take all your records to an attorney with a specialization in IRS matters.