Can the IRS Freeze Your Bank Account? Understanding the Process and Your Options

Latest Facts and News:

• The Supreme Court ruled that the IRS can access bank records without notifying account holders of delinquent taxes.
• The IRS recovered $1.3 billion using enhanced enforcement funded by the Inflation Reduction Act.
• The Strengthen Taxpayer Rights Act of 2023 aims to improve transparency and fairness in enforcement.
• The IRS revised its manual to ensure consistent procedures for bank levies

What if you woke up one day to find that, for some unexplained reason, you don’t have access to your bank account? The IRS blocked your account and you wouldn’t be able to do anything from shopping to paying rent. Scary, isn’t it?

This happens (at least in many cases) when the IRS has knowledge that you owe them back taxes, giving them rights to go after your savings.

If this sounds similar, you aren’t only facing financial difficulties; in fact, time is running out as you struggle to resolve the issue before your account is empty.  

If you are browsing the question “Can the IRS freeze your bank account?” — it likely means you are dealing with tax debt now.

Thus, to better prepare yourself, read through to the end to learn the specifics of what happens when the IRS seizes your bank account. 

Also Check out: Consequences of Not Paying Taxes: What You Should Know

Understanding IRS Bank Account Freezes

Have you been wondering, “Can the IRS freeze your bank account?” Yes, it has to be about the strongest measures the agency might take when trying to collect unpaid taxes. A bank account freeze, or bank levy, is essentially a legal tactic through which the IRS can go directly into accounts to satisfy unpaid tax debts.

When Can the IRS Freeze Your Bank Account?

The IRS does not immediately freeze bank accounts, given that there is no prior notice. A series of notices for collection of unpaid tax dues normally precede bank freezing. This is how the process works:

1. Unpaid Tax Debt: If you have unpaid taxes, an IRS notice lands up in your mail regarding the amount you owe and payment options.
2. Failure to Pay or Reply: Ignoring these notices can escalate the situation concerning can the IRS freeze your bank account further.
3. Final Notice: Before freezing your account, the IRS will send a Final Notice of Intent to Levy and grant 30 days for you to resolve the matter.
4. Levy Action: If you do not take action within the stipulated time, the IRS will notify your bank to freeze your account and take funds to offset your tax liability.

Also Read: Why Did I Receive a Certified Letter from the IRS?

Types of Accounts Subject to IRS Freezes

The first question in the minds of many is, “Can the IRS freeze your bank account?” But, the question that comes right after is what are the various accounts for IRS freezes? 

The IRS can freeze various types of accounts as a means of recovering unpaid taxes. Here are the kinds of accounts that may fall victim and any exceptions spelled out for each type:

• Personal Accounts: The IRS has the capacity to levy any unpaid taxes from funds accumulated in the personal checking and savings accounts of individuals. However, certain kinds of funds, such as, but not limited to, Social Security or disability payments, may be exempt from possession.
• Business Accounts: Business accounts may also be frozen, especially when the tax liability is linked to business income or is based on payroll taxes. It is, however, possible to insulate accounts from necessary operations of the business to some extent by providing limited protection against shutting the business down.
• Joint Accounts: Joint accounts are threatened even if only one account holder owes taxes. In that event, the co-owner, who doesn’t owe, can dispute and prove, as evidence, that their portion of the money should not be taken in the levy concerning if at all can the IRS freeze your bank account.
• Retirement Accounts: The types of accounts affected by deprivation from levy include retirement accounts such as 401(k) or IRAs. The IRS must meet certain criteria before targeting these in collections. Some will then be exempt because funds in such accounts are needed to provide for basic living expenses.
• Custodial Accounts: Levy may also be laid against such accounts, like UGMA or UTMA accounts kept for minors, but strictly following certain conditions. If the funds belong to the minor and are unrelated to the debtor, they protect it most of the time.
• Trust Accounts: Revocable trusts can be levied if the creator of the trust owes taxes on those levies; irrevocable trusts are less levied. Trusts that have been established for the sole reason of safeguarding funds from tax obligations will be under extra scrutiny.

What Happens During a Bank Account Freeze?

Basically, once your account is frozen the following happens:

• Access is Restricted: Naturally, you won’t be able to withdraw or use the funds in your account until the issue is resolved.
• Funds Are Held: Your bank is required to hold the funds for 21 days before transferring them to the IRS. This holding period is actually your last chance to dispute the levy or arrange payment.
• Daily Life Expenses Disrupted: Essential payments like rent, groceries, and utilities may be affected, causing significant financial stress.

That being said, it comes as a natural question when you’re dealing with unpaid taxes: Can the IRS freeze my account? Acting quickly to resolve the issue is of course the best course of action before it gets out of hand.

Warning Signs and IRS Notices

What to Look for in IRS Notices

• Amount Owed: Ensure the figures align with your tax records.
• Deadline to Respond: Pay attention to dates and act promptly.
• Contact Information: Use the provided phone number or address to reach the IRS directly.

Steps to Take If Your Account Frozen By The IRS

Facing a situation where you’re asking, “Can the IRS freeze your bank account?” can be overwhelming, but understanding the necessary steps can help you regain control.

Here is a closer look at what one should follow to put things back in order and avoid the loss of money:

Verify Freeze Reason

• Call your bank and inquire whether the IRS has placed a freeze on it.
• Then look through the IRS letters for the Notice of Intent to Levy or any other correspondence related to unpaid taxes.

Know Your IRS Notices

• Carefully read the last notice of the IRS to know the amount due and the underlying causes for the levy.
• Note any deadlines or instructions for resolving the issue.

 Contact the IRS Immediately

• Call the number that comes with the IRS notice or use their toll-free assistance line.
• Keep your tax ID and bank direct account details handy-as well as relevant copies of the notices.
• See if you qualify for some resolution options like payment plans or an Offer in Compromise.

Request a Levy Release

• Request a hardship release if the levy causes you financial difficulties (for example, unable to pay rent or purchase food).
• You may require financial evidence such as income and expense statements.

Negotiate a Payment Agreement

• Offer an IRS payment plan to settle your debt in manageable installments.
• Upon acceptance of the plan, the IRS will mostly release the levy.

File an Appeal if Necessary

• If you believe the levy was wrongly charged or that the amount owed is inaccurate, then you should appeal the levy using Form 12153 for Collection Due Process (CDP) hearing.
• This can temporarily halt the levy and time to work through the issue.

Wrapping Up 

Did you know that even if you’re wondering, “Can the IRS freeze your bank account?” and they proceed to do so, they aren’t entitled to take all the money immediately?

The law requires your bank to hold the funds for 21 days before transferring them to the IRS. This holding period is designed to give you time to take action whether that’s disputing the levy, proving financial hardship, or negotiating a resolution.

This 21-day window is crucial and often overlooked. Many taxpayers assume that once the freeze happens, there’s no going back. But if you act swiftly, you may be able to prevent the IRS from seizing the funds altogether.

Understanding this grace period could mean the difference between keeping your hard-earned money and losing it. 

Don’t wait before time goes out of your hand.