Frozen bank account? Here’s what to do next
If you’ve ever had your bank account frozen by the IRS, you know how frustrating and scary it can be. No doubt it is an uncomfortable experience, but there are steps you can take to protect yourself and your assets moving forward. Oftentimes, a frozen bank account is a result of a tax levy. To understand why a bank account is frozen, one must understand what a tax levy is, and then they can begin taking the steps to get their funds released.
But don’t panic – here’s what to do next. First, get in touch with an experienced tax attorney who can help you navigate this difficult situation and get your bank account unfrozen as quickly as possible. Then, take a deep breath and start planning for how you’ll manage without access to your funds. With a bit of patience and careful planning, you’ll be able to get through this tough time unscathed.
In this blog, we will cover what a tax levy is, potential reasons for a frozen bank account, how to unfreeze your bank account, and when it is time to hire legal representation. Read on to learn more.
What is a tax levy?
A tax levy is a legal claim the IRS can make on your property in order to satisfy an outstanding tax debt. The most common type of tax levy is a bank account levy, which allows the IRS to freeze your bank account and seize the funds held within it.
The IRS typically won’t take this drastic measure unless you’ve ignored their previous attempts to collect the debt, such as by ignoring a Notice of Intent to Levy or failing to make payments on an installment agreement. If the IRS does freeze your bank account, you’ll receive a notice in the mail informing you of the levy and giving you information on how to release it.
Why is my bank account frozen?
There are a few different reasons why the IRS may have frozen your bank account. The most common reason is that you have an outstanding tax debt that you haven’t paid. The IRS may also freeze your bank account if you’re currently under audit or if you’ve failed to file your taxes for multiple years.
The banks are authorized to freeze a person’s bank account immediately without informing them of a levy notice. Since they usually do not notify a person before freezing their bank accounts, so it can be very frustrating. If the bank suspects fraudulent activity or charges, it can also freeze the account to prevent further charges. Some reasons a bank account might be frozen are:
- You have an outstanding tax debt.
- You’re currently under audit.
- You’ve failed to file your taxes for multiple years.
- You haven’t paid your taxes in full.
- The IRS believes you’re using your bank accounts to commit tax fraud.
What if I have a joint bank account?
Joint accounts can be frozen as well. Oftentimes it is due to a judgment against one, not both, joint account holders. In these cases, the IRS may temporarily freeze the bank account to protect any joint funds from being used to pay off the individual’s tax debt. If you have a joint bank account that has been frozen by the IRS, you should contact an experienced tax attorney as soon as possible to help you get your funds released.
Has there been a mistake?
If you believe there’s been a mistake, you can contact the IRS to try and resolve the issue. However, it’s always best to hire a tax lawyer to help you with this process, as they’ll be able to give you the best chance of success.
If you have unpaid debts on things like student loans or unpaid taxes, the bank can freeze your account. It is best to stay current with any payments being made.
It is also comforting to remember that frozen bank accounts can still receive deposits, but withdrawals and transfers are not permitted. So if this was a business account, you can still receive payment from your customers.
Steps to take if you have a frozen bank account
- Don’t panic – the IRS won’t freeze your bank account without warning you first. You’ll receive a notice in the mail called a Notice of Intent to Levy. This will give you 30 days to take action before your bank account is frozen.
- Take action – if you don’t want your bank to freeze accounts, you’ll need to take action within that 30-day period. You can either pay the amount owed in full, set up an installment agreement, or make an Offer in Compromise.
- Know your rights – even if your bank account is frozen, you still have certain rights. The IRS can only take the money that you owe them, plus any interest and penalties. They also can’t take more than $5,000 from your account at one time, or take more than what’s needed to satisfy your tax debt.
If you believe that the IRS has taken more money from your account than they’re legally allowed to, you can file a claim for a refund. You can also file a request for an abatement of interest and penalties if you believe that you’ve been unfairly.
- Contact the IRS as soon as possible to find out why your account was frozen and what you need to do to fix it.
- Gather all of your financial documents together, so you can prove that you’re paying your taxes and don’t owe any more money.
- If the IRS froze your bank account by mistake, they will usually release the funds within a few days. However, if you do owe money, you’ll need to work out a payment plan or negotiate an Offer in Compromise.
How to release a bank account levy
If you want to avoid having your bank accounts frozen, you need to take action within the 30-day period after receiving the Notice of Intent to Levy. You can do this by paying the amount owed in full, setting up an installment agreement, or making an Offer in Compromise.
You may be requested to submit bank statements to show what funds in the frozen bank accounts are exempt from the tax collection.
Occasionally, a judgment creditor may delay or avoid releasing exempt funds. For particular cases, it is important to file a Claim of Exemption, even in the case of exempt funds.
If you’re unable to pay the full amount owed, an installment agreement may be a good option. With an installment agreement, you agree to make monthly payments towards your debt until it is paid off in full. You can set up an installment agreement by contacting the IRS and submitting a financial statement.
What is an offer in compromise?
An offer in compromise is an agreement between you and the IRS that allows you to settle your tax debt for less than what you owe. This can be a good option if you’re unable to pay your full tax bill, but it’s important to note that not everyone will qualify.
In order to qualify for an Offer in Compromise, you’ll need to prove that:
- You can’t pay your full tax debt.
- You don’t have the assets or income to pay your debt.
- Paying your debt would create a financial hardship for you.
If you think that an Offer in Compromise is the right solution for your situation, you can submit an application to the IRS.
Hiring a tax lawyer
If you’re facing a bank levy, it’s always best to hire a tax lawyer to help you through the process. They’ll be able to give you the best chance of success and help you navigate the complex world of tax law. Working with an attorney who can help you resolve the issue with the IRS quickly is a
great way to efficiently resolve the issue while protecting your rights. At Damiens Law, we advocate for our clients. They have their problems solved while remaining protected in their rights.
Work with an experienced tax attorney
At Damiens Law, our team is experienced in resolving issues concerning tax debt with the Internal Revenue Service. If you have a frozen account or unpaid debts, they are here to help you create a payment plan, reduce your tax liability, or even eliminate it altogether.
Don’t wait to get the help you need – contact Damiens Law today for a consultation.