The IRS has the obligation to ensure that all taxpayers comply with the country’s current tax regulations. In doing so, it’s given the authority to pursue tax debt owed by taxpayers through various means, including freezing your assets.
So, how does the IRS go about doing this? And what kinds of situations prompt the tax authorities to do so? Keep reading to learn more.
How the IRS Can Impact Your BankAccount
What Does It Mean for the IRS to Freeze Your Bank Account?
Can the IRS freeze my bank account? Yes, they can. A bank account freeze or levy is when the IRS places a legal hold on your account, preventing you from accessing your funds until they are lifted—usually when you have agreed with the authority to settle your debt. Sometimes, the IRS may use your bank funds to cover your debts.
Why Would the IRS Freeze My Bank Account?
The IRS can freeze your bank account for a variety of reasons. The most common trigger is unpaid taxes. If taxpayers fail to pay their debt, collection action may begin, including freezing a bank account.
Failure to respond to IRS requests may also result in a levy. When a taxpayer has unpaid taxes, the tax authority sends numerous notices, reminding the taxpayer of the problem and offering various options for settling the debt. Ignoring these notices and not complying with the requests will result in scrutiny.
Noncompliance with payment agreements is another reason the tax authority may freeze your bank account. If you fail to pay the debt by the agreed-upon deadline, further action, such as a levy, may be imposed.
How the IRS Can Legally Freeze Your Bank Account
The IRS must follow certain procedures before conducting levies. First, it will send several notices informing taxpayers of the problem, demanding payment, discussing available options, and outlining what actions can be taken if they refuse to comply.
The IRS will also provide timeframes for action. For example, if you’ve received a final notice, you typically have 30 days to respond before the IRS can legally levy your bank account. A Federal Tax Lien may also be issued to legally claim your asset and notify creditors. As previously stated, the authority may use your bank account funds to secure the debt.
How to Prevent the IRS from Freezing Your Bank Account
Tip #1: Respond to IRS Notices and Communications
Responding promptly to any IRS notices and communications is crucial to preventing a bank freeze. Pay attention to the details in the message and ensure your response meets the IRS’s requirements and is completed by the specified deadlines.
Tip #2: Pay Your Tax Debt in Full or Set Up a Payment Plan
The best way to avoid problems with the tax authorities is always to pay your tax debt on time. The IRS will not look for trouble if none exists. If you cannot fully pay your debt, options like a payment plan are available.
You can pay in installments or reduce your tax debt, depending on your situation. Understand the various options and what requirements must be met to ensure a smooth and successful process.
Tip #3: Apply for an Offer in Compromise
An Offer in Compromise (OIC) is one good option for those having trouble paying off their full tax debts. With an OIC, a taxpayer can settle the debt for less than what is owed. To qualify for an OIC, one must demonstrate that they cannot repay the debt or that doing so would cause significant economic hardship.
Read our Offer in Compromise piece here for a more in-depth look at an OIC.
Tip #4: Request a Collection Due Process Hearing
Taxpayers have the right to a Collection Due Process (CDP) hearing. If you disagree with the IRS decision, whether the amount of debt imposed or the decision to levy, you have the right to challenge it.
Submit IRS Form 12153, Collection Due Process Request, within 30 days of receiving the Final Notice of Intent to Levy. This will immediately halt the levy process until the dispute is decided. Ensure you don’t miss the 30-day deadline, as this is a very strict requirement, and you risk losing your right to a CDP.
Tip #5: Demonstrate Financial Hardship
If a taxpayer can demonstrate genuine financial hardship, the IRS can offer options such as a Currently Not Collectible (CNC) status, which immediately pauses collection actions.
For example, the levy will be lifted if the IRS freezes your bank account and causes immediate economic hardship, such as preventing you from paying rent, utilities, or food.
However, your tax debt will remain if you qualify for a CNC and the levy is lifted. During the pause, explore the payment options to manage your tax debt and prevent the issue from escalating.
What to Do If the IRS Freezes Your Bank Account
Contact Your Bank and IRS Immediately
If the unfortunate event of a bank freeze occurs, contact your bank and the IRS immediately. Call the bank to confirm the situation and ensure that any actions are legally compliant.
Communicate with the IRS about your situation and choose one of the options available to you. Don’t wait in this dire situation. The longer you wait, the more trouble you’ll get in. If you’re unsure what to do or how to communicate, seek professional help.
Seek Professional Tax Help
Communication with the IRS requires the right language and accurate responses. Solving a complex issue, such as tax problems, can be daunting and, if not done correctly, can lead to additional trouble and stress.
Contact a tax attorney to assist you with any tax issues to ensure proper communication, requests are fulfilled and completed accurately, and the outcome is as desired. This is where contacting Greenberg Law Group becomes the best option. Our legal team can effectively guide you through this complex situation.
