Can the IRS freeze your bank account? As a taxpayer, it is one of the most daunting experiences you may encounter. The Internal Revenue Service (IRS) has various tools at its disposal to collect unpaid taxes, and bank account levies are one of them. In this comprehensive guide, we will explore the IRS’s authority to freeze your bank account, how it differs from other collection methods like tax liens, and what you can do to address this situation. So, let’s dive into the world of IRS collections and find out if your bank account can be frozen.

Tax Liens – What Are They?

A tax lien is a powerful tool used by the IRS to secure unpaid taxes. It is a formal declaration of the IRS’s right to collect taxes it believes are owed by a taxpayer. Tax liens are typically filed when a taxpayer fails to respond to demands for payment. They apply to individuals, businesses, and various entities with tax liabilities. A tax lien remains in effect until the tax debt is satisfied or becomes unenforceable, usually due to the statute of limitations. It grants the IRS priority over certain creditors, allowing them to collect in various ways, including through levies.

Tax Levies – Seizing Your Assets

Once the IRS has issued a tax lien and established their intent to collect, they can initiate collection proceedings by using a tax levy. A levy is a legal action that allows the IRS to seize assets to satisfy a tax liability. These assets can include wage income, bank accounts, state tax refunds, accounts receivable, and even real estate or property. To levy a bank account, the IRS must provide written notice to the taxpayer, typically through letters and notices like Notice LT39 or Notice CP90. It’s important to note that the IRS does not disclose the exact timing of a levy, making it crucial to respond promptly to IRS notices.

Dealing with a Tax Levy: Know Your Rights

If you find yourself facing a tax levy, understanding your rights as a taxpayer is essential. You have the right to retain representation, appeal an IRS decision in an independent forum, and appeal a federal tax lien through specific programs. Given the limited window for appeals, seeking professional assistance from qualified tax controversy professionals is advisable.

The IRS Is Garnishing Your Wages—What Can You Do?

Wage garnishment is a method employed by the IRS to collect tax debt. It requires a court order served to your employer, mandating them to deduct a portion of your earnings and send it to the IRS. The garnishment remains in effect until released by court order or through legal action. The IRS, unlike other creditors, can garnish wages without obtaining a judgment.

How Much of Your Salary Can the IRS Take?

The IRS can require your employer to deduct the non-exempt amount, calculated based on various factors such as your tax filing status, dependents, and more. Wage garnishments continue until the tax debt is paid off unless alternative arrangements are made. For taxpayers with limited income, options include Installment Agreements, Partial Pay Installment Agreements, and Currently Not Collectible status. However, timely tax filings and payments are crucial when pursuing these options.

Can the IRS Touch Your Retirement Savings?

In some cases, the IRS can levy a portion of your Social Security or other retirement plans, potentially affecting your financial security. To explore these options, it’s essential to engage with the IRS proactively and make timely arrangements.

Freezing Bank Accounts: How It Works

When the IRS decides to freeze a bank account, they initiate this action by sending a formal notice to the bank in the form of a Form 668-B. Upon receiving this notice, the bank is legally obligated to freeze the funds present in the levied accounts for a duration of 21 days. This freeze is imposed on an amount equivalent to the tax debt specified by the IRS. It’s important to note that failure on the bank’s part to comply with this directive can result in penalties being imposed.

During this 21-day freeze period, taxpayers have a crucial window of opportunity. They can appeal the levy and request its removal, allowing them to contest the IRS’s decision. It’s a critical step for individuals to exercise their rights and potentially prevent the funds from being transferred to the IRS. However, if the taxpayer fails to take action within this timeframe, the bank is obligated to send the frozen funds to the IRS. Typically, these funds are first applied to any accrued penalties and interest before being used to settle the actual tax debt. Therefore, prompt action is essential for taxpayers facing a bank account freeze to protect their financial interests.

How to Deal with IRS Bank Account Freezes

It’s important to understand that the IRS can issue a bank account levy once you’ve been properly notified. These levies are not arbitrary and are used to get the attention of individuals or businesses with unpaid tax debts. When dealing with IRS collection activities, consider hiring experienced representation or contacting the IRS directly. In some cases, allowing the levy to remain may be an option, but it’s crucial to assess the potential long-term impact.

The IRS’s ability to freeze your bank account is a serious matter, but there are options and rights available to taxpayers. Whether you’re dealing with tax liens, levies, wage garnishment, or frozen bank accounts, seeking professional assistance from tax resolution experts can make a significant difference. At Tax Rise, we specialize in helping individuals and businesses navigate IRS collection actions. If you’re facing tax-related challenges, don’t hesitate to reach out to us for a free tax consultation. Let us help you find the best solution for your tax debt issues and secure your financial future.

In this comprehensive guide, we’ve explored the IRS’s authority to freeze your bank account and various options for addressing IRS collection actions. Remember, when it comes to IRS matters, professional guidance can be invaluable. Don’t let tax problems overwhelm you; take action today to resolve them with Tax Rise’s expert assistance.