Paying taxes is one of the most important responsibilities of a citizen. These taxes go to a good cause like improving health care, education, and other vital aspects of building a fully functioning nation. While the U.S. tax law is notorious for being so complicated, there are measures in place to help people resolve their tax issues.
However, in cases where individuals neglect their taxes for an extended period, the IRS could take more drastic actions. This article will explain why the IRS could hold and freeze your assets, including your bank accounts.
“Can the IRS freeze my bank account?”
Yes, the IRS can freeze your account under certain circumstances. The IRS possesses full authority to freeze assets, like bank accounts, as they see fit to collect unpaid taxes.
However, the IRS can only freeze assets in an individual or joint bank account that is required to pay a delinquent tax debt. Under the rule, the freeze will apply only to the funds stored in the account on the day the levy is imposed.
If the individual takes no action after the exaction of the levy, the bank is inclined to pay the fee from your account to the IRS after 21 days. If there is still a balance due after a certain period, the IRS may issue another levy; it’s best to consult with a tax attorney to resolve these issues.
Unpaid tax debts are just one of the primary reasons the IRS can freeze your bank account. Let us discuss other possible reasons the IRS could freeze your assets.
4 Reasons the IRS Would Freeze Your Bank Account
1. You don’t respond to collection notices from the IRS
It’s important to keep lines of communication open with the IRS, even if you’re unable to pay the total amount of your tax bill. As long as you remain actively communicative, the IRS has no grounds to freeze your bank accounts without prior notice.
You will receive multiple Notices of Tax Due and Demand for Payment, otherwise known as CP14 notices, that state money owed in unpaid taxes. Upon receiving and seeing these notices, it’s best to work towards paying off these tax debts or contacting the IRS to arrange a reasonable payment plan.
2. There’s suspicious activity on your bank account
The IRS and banks have the discretion and authority to freeze accounts under suspicion of illegal activities. Banks practice routine monitoring for suspicious activity, such as money laundering. Banks can also freeze your bank account if you issue or cash fraudulent checks.
3. You defaulted on a payment plan or OIC agreement
If you default on a payment plan or an offer in compromise (OIC) agreement, not only can the IRS freeze your bank accounts but it can also terminate the agreement.
The IRS may propose a termination under certain circumstances like a taxpayer’s failure to pay installment upon due, failure to settle other tax liabilities, failure to provide a financial statement, providing inaccurate information, and failure to stick to the modified payment plan.
Taxpayers who fail to meet the terms of the payment plan will be notified in writing and given 30 days with the agreement terms before the agreed-upon payment plan is terminated.
4. You committed bank secrecy violations
An extreme circumstance wherein the IRS can freeze your bank accounts is if you’re caught committing violations of bank secrecy laws.
Financial institutions are compelled to report cash deposits exceeding $10,000 and to file a suspicious activity report if a client’s activity mirrors actions of money laundering, check fraud, or wire transfer fraud.
The IRS has the right to freeze the bank account in question and turn over pertinent data to the Department of Justice to carry on further investigation.
What to Do When the IRS Freezes Your Bank Account
1. Pay your taxes in full
If you can fully pay off your taxes, the IRS will not proceed with the levy and release the restrictions on your account fund. Fully paying your taxes prevents you from incurring more fees like interest or penalty charges.
2. Apply for an installment agreement
If you’re unable to pay the tax amount in full, consider entering into an installment agreement. An IRS installment agreement payment plan resembles what a credit card company or a car loan establishment offers. Monthly payments will be required to pay off the debt in full.
3. File an offer in compromise
An offer in compromise (OIC) allows you to decrease the tax amount instead of having to pay the total amount you owe. The IRS will only accept taxpayers who qualify for this arrangement, and if the IRS believes they can obtain the amount through other means or you’re fully capable of paying, they will send a rejection letter.
4. Consult with a tax professional
Upon learning that your bank accounts have been frozen, it’s best to consult with a tax professional immediately. You only have 21 days to act before the money is taken from your account, and there’s no assurance it will ever be returned.
Quickly reaching out to a tax professional well-versed in resolving IRS bank levies can get you the necessary support and help.
Timely Tax Paying
Paying taxes is a responsibility, and the IRS has the right to impose fines and levies when an individual fails to fulfill this duty. While the U.S. tax system may be confusing, it is up to you as a law-abiding citizen to be knowledgeable about tax laws to avoid account freezing incidents.
Suppose you’re still in a bind regarding your taxes and require reliable tax resolution companies. In that case, look no further than Tax Samaritan. Tax Samaritan has been providing excellent tax resolution services since 1997 to expats dealing with tax-related issues.
If the IRS is knocking on your door, get your “peace of mind” with Peace of Mind Tax Help. Our team of experienced tax professionals can help you find relief from tax burdens—fast!