If you have a whole life insurance policy with cash value, the IRS cannot directly take the life insurance cash value. If you owe back taxes, they will be able to take your property and any money that you have in your bank account. They can even garnish your wages and in some cases put you in jail. However, the money that is in your life insurance policy is not eligible for the IRS to take. If you get a life insurance payout, you may want to use the money to pay the IRS so that you do not lose everything else.