Several tax issues may compel the IRS to freeze your bank account. For example, if you owe the IRS back taxes, it could place a tax levy on your bank account and freeze your funds. However, before the IRS can freeze your accounts, you will receive several tax balance due notices that request payment (CP14, CP501, CP503, LT16, CP504, CP90, CP91).
We will review the reasons that lead to your bank account being frozen by the IRS and the steps you need to take to unfreeze your account or stop a bank levy.
When Does the IRS Freeze Bank Accounts?
There are many reasons that can lead to your bank account being frozen by the IRS. However, the most common reason is that you have past due taxes that you have not paid despite several reminders. The IRS can also freeze an account that is currently under audit.
Other reasons why the IRS may have frozen your bank account include the following:
- You have not filed your taxes for several years
- You have not paid your taxes in full
- You defaulted on an Offer in Compromise agreement or other IRS payment plan
- The IRS believes you committed tax fraud using your bank account
What Do You Do When the IRS Freezes Your Bank Account?
Depending on your specific tax situation, the following are some of the steps to take to unfreeze your bank account funds or release an IRS bank account levy:
- Pay all your back taxes in full including any interest and penalties.
- If you cannot pay your back taxes in full, consider an IRS installment agreement to spread your tax debt payments over many months.
- If eligible, submit an Offer in Compromise to reduce your total tax debt so you pay a lower amount.
- Demonstrate economic hardship to the IRS by proving you will not meet basic daily needs with all your funds frozen.
- If the IRS made an error, especially if it froze your account despite you having no tax liability, dispute the levy within 21 days. When contesting the IRS levy error, enclose a copy of your tax payment as proof.
- If the money in your bank account is not yours, show the IRS that the funds belong to someone else. For example, if the funds in your frozen account belong to your elderly father, show proof you normally help him pay his monthly bills with the money.
How Much Time Do You Have Before the IRS Takes Money from Your Bank Account?
Before the IRS takes your money, it waits 21 days from the date it froze your bank account. This is typically referred to as the “waiting period” or the “21-day freeze.” During this period, the IRS expects you to either pay the tax debt in full, make payment plan arrangements, or dispute the levy.
If you do not settle your tax debt or have a payment agreement at the end of the freeze period, the IRS can seize all the funds in your account. However, you can still file a claim with the IRS to have the money refunded to you.
Does an IRS Bank Account Freeze Affect Future Deposits?
When the IRS freezes your bank account, the freeze generally does not apply to future funds deposited in your account. It only applies to the specific amount for the levy on the specific date and time the bank received the IRS levy notice.
Similarly, if the freeze expires without you paying the owed amount or reaching a payment agreement with the IRS, the agency will only seize the amount specified for the levy.
Can the IRS Freeze a Joint Bank Account?
Yes, an IRS levy can be placed on joint accounts. This means a delinquent taxpayer’s funds in a joint account can be frozen. The freeze applies whether the assessment is against one or both account holders.
If the IRS Freezes My Bank Account, Can They Terminate My Installment Agreement or Offer in Compromise?
If you fail to adhere to the terms of your payment plan or OIC agreement, the IRS can terminate your plan or agreement when they freeze your bank account.
Typically, the IRS proposes a termination under the following scenarios:
- Failure to pay installments as agreed
- Failure to provide a financial statement
- Providing false or inaccurate information
- Failure to adhere to a modified payment plan
When taxpayers fail to meet the terms of an IRS payment plan or other tax relief agreement, they are notified in writing and given a 30-day deadline before the plan is terminated.
Having your bank account frozen by the IRS can be frustrating and scary. Fortunately, there are several steps you can take to protect your funds from being seized by an IRS levy.
If you need assistance with tax relief services to unfreeze your bank account or have an IRS levy removed, please schedule a free call with us or get started online so we can see how we can help.
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