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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FAQs
Yes, depending on how much you owe, the IRS can take all the money in your account. In some cases, all of the assets in someone's bank account may be seized if there are sufficient funds available to cover their debt.
How can IRS freeze your bank account? ›
When Does the IRS Freeze Bank Accounts?
- 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.
Once the IRS sends you a Final Notice of Intent to Levy, you have 30 days to request an appeal or Collection Due Process (CDP) hearing. If you fail to take any sort of action within 30 days, the bank levy takes effect. Your funds are frozen and set aside by the bank for 21 days.
How long does it take for IRS to unfreeze your bank account? ›
When the levy is on a bank account, the Internal Revenue Code (IRC) provides a 21-day waiting period for complying with the levy. The waiting period is intended to allow you time to contact the IRS and arrange to pay the tax or notify the IRS of errors in the levy. Generally, IRS levies are delivered via the mail.
How do I unfreeze my bank account from the IRS? ›
What to Do If the IRS Freezes Your Bank Account
- Respond to the IRS. The IRS allows you to respond to the issues, preferably before they freeze the bank account. ...
- Hire an Expert. ...
- Clear Your Taxes. ...
- Ask for An Installment Agreement. ...
- Offer In Compromise. ...
- Let a Tax Professional Help. ...
- Be Proactive. ...
- Avoid Suspicious Activities.
Banks may freeze bank accounts if they suspect illegal activity such as money laundering, terrorist financing, or writing bad checks. Creditors can seek judgment against you, which can lead a bank to freeze your account. The government can request an account freeze for any unpaid taxes or student loans.
Can the IRS come after me for my parents debt? ›
Debts are not directly passed on to heirs in the United States, but if there is any money in your parent's estate, the IRS is the first one getting paid. So, while beneficiaries don't inherit unpaid tax bills, those bills, must be settled before any money is disbursed to beneficiaries from the estate.
What accounts can the IRS not touch? ›
- Veterans' Benefits.
- Child Support Payments.
- Welfare Benefits.
- Workers' Compensation.
- Foster Care Payments.
- Casualty Insurance.
- State Crime Victims' Funds.
- Inheritances.
Before the IRS can seize your bank account, they must first issue a Notice of Intent to Levy, giving you the opportunity to resolve the tax debt or request a Collection Due Process (CDP) hearing within 30 days.
Can IRS empty your bank account without notice? ›
6. You have due process rights. The IRS can no longer simply take your bank account, automobile, or business, or garnish your wages without giving you written notice and an opportunity to challenge its claims.
The Short Answer: Yes. Share: The IRS probably already knows about many of your financial accounts, and the IRS can get information on how much is there. But, in reality, the IRS rarely digs deeper into your bank and financial accounts unless you're being audited or the IRS is collecting back taxes from you.
What are the three assets the government can't touch? ›
Property immune from seizure includes: Clothing and schoolbooks. Work tools valued at or below $3520. Personal effects that do not exceed $6,250 in value.
Can the IRS garnish your wages after 10 years? ›
Background. Each tax assessment has a Collection Statute Expiration Date (CSED). Internal Revenue Code section 6502 provides that the length of the period for collection after assessment of a tax liability is 10 years. The collection statute expiration ends the government's right to pursue collection of a liability.
What happens when the government freezes your bank account? ›
Also when you have unpaid debts like the student loans or unpaid taxes to the government, your bank accounts are likely to get frozen. Once the bank account is frozen, you cannot make withdrawals but can only put money in your account until the freeze is lifted. Joint accounts can get frozen too.
What does the IRS do if your bank account is closed? ›
If the account is closed or incorrect banking information is provided to us, the bank will reject the refund. Once we receive the refund back from the bank, the Comptroller's Office will issue a paper check and mail it to you.
What triggers an IRS bank? ›
Key Takeaways. The IRS has a computer system designed to flag abnormal tax returns. Make sure you report all of your income to the IRS, including investment income or gambling earnings. Cash businesses, large amounts of foreign assets, and large cash deposits are some of the things that can trigger an IRS audit.
Can the IRS freeze your LLC bank account? ›
While the IRS can't levy your business account for your personal back taxes, the IRS can freeze and seize your company's assets to satisfy your tax debt if your business has a sizable tax liability. In most cases, for the IRS to implement a levy, your business must have: A substantial amount in back taxes.
