Freezing accounts is a relatively common action when the garnished person owes debts to the IRS. If you are wondering if the IRS can freeze your bank account, the answer is yes, but there are many things to keep in mind that can change this situation.
The seizure of bank accounts by the IRS
One of the tools available to the IRS to collect debts from defaulters is to freeze their bank accounts. However, while this is perfectly legal and possible, it must comply with the law’s rules and steps.
The first important issue is that it is impossible to have your bank accounts frozen if you have not been properly notified beforehand. You must present this notification in writing before the freezing. Also, note that you have the right to appeal the garnishment notice 30 days before its execution.
In addition, the bank may generally hold the balance due for at least 21 days before payment to the IRS.
Once the legal notice periods have elapsed, the money will be automatically deducted from your levied bank account. It is important to be clear that, as we will see below, this will probably affect all of your funds. In addition, the garnishment will have to be for the amount owed, which may include all of your balances if it does not reach that amount.
When can the IRS freeze your accounts?
Typically, an account freeze requested by the IRS is related to tax debts.
Usually, this is not the first enforcement process. A levy would culminate in a process in which the debtor has received several notices to settle the debt with the institution.
An account freeze occurs when these notices have not satisfied the debt, i.e., when it has not been paid, or other negotiated solutions have not been sought. It can also occur when no response has been made to any communications requested by the IRS.
On the timeline, after the notice and the period for contesting the levy, the account will remain blocked for 21 days before being transferred to the IRS. What is important about this fact is that while you could not touch your blocked money, neither could the institution. That gives you a sort of grace period since, in that time frame, you could try to settle the debt. Generally, though, when a garnishment is requested, the garnishment has been executed, and the money blocked, a debt moratorium or similar option will be difficult.
What is involved in an IRS account freeze?
One aspect of an account freeze that people often overlook is an attachment of the account. Although, in some very special cases, it may block only the proportionate share of debt, an account freeze will generally block all of your funds. That includes the debt and even the money left over on top of the debt.
That includes not only being able or not being able to withdraw funds but also direct debit payments. It can create additional problems for you, such as costs for charges with insufficient funds and for you to make deposits into your account when it is frozen. What is not possible is to use the account for debit transactions between different accounts. For example, if your account is frozen, but you want to deposit an amount of money so that within 21 days, you can pay off the debt in full, you can do so.
The only way to reactivate the account would be to deposit or withdraw money, but, as we have seen, this must be authorized by the bank and not blocked by the IRC. On the other hand, remember that sometimes banks may block accounts: this has to do with situations such as suspicion of fraudulent movements, etc.
Alternatives to freezing accounts
The main alternative is to stay current on tax debts. When this is no longer possible, you should first try to agree to a moratorium or payment plan after an IRS communication about debt. Generally, the entity is open to installment agreements.
Another way is to request an extension for payment of the full balance. However, deferments and attachments may not be excessively long.
Remember that when required payments are not met, default penalties are imposed. These penalties are added to the debt and accumulate an amount equal to one-half of 1% per month or part of a month up to 25% of the amount owed. In the case of large debts, this can result in very high penalty amounts.