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When does the IRS freeze taxpayer assets?

On Behalf of | Apr 12, 2022 | Internal Revenue Service

 

The Internal Revenue Service (IRS) has a variety of methods to address taxpayers who do not file accurate tax returns or do not submit a return. 

Among them, the federal agency can deny an application for a U.S. passport or revoke an existing one. The IRS can also place a lien against a delinquent taxpayer or other valuable property. The federal revenue agency can impose fines and refer cases to the U.S. Attorney’s Office for prosecution. 

An additional tactic that many delinquent taxpayers are unaware of is freezing assets. In order to execute this practice, there are specific circumstances that need to exist.

What does freezing assets entail?

An asset freeze often entails restricting access to bank accounts and, more specifically, their funds. Freezing assets enacts a stop payment on all outstanding checks used to pay others. Banks return such checks without clearing them for insufficient funds. 

The IRS can have banks freeze accounts that are exclusively in your name as well as ones that you jointly share with others, even if they do not have any connection to your tax delinquency. 

While the IRS commonly freezes bank accounts, the federal agency also levies state and federal tax returns and individuals’ paychecks issued by their employers. 

Situations when the IRS may freeze your assets

IRS officials are authorized to freeze someone’s assets when they fail to pay their taxes. Thus, circumstances that can prompt federal revenue officials to freeze assets include:

  • Owing money after having made an error on a tax return
  • Neglecting to file a tax return
  • Discontinuing payments in accordance with an agreed-to plan

Bank freezes do not always apply to the entirety of the funds in your bank account, but instead, the amount that the IRS deems owed, plus any associated interest. These freezes tend to last 21 days while you attempt to resolve matters with the IRS, after which time the bank remits any money levied by the federal revenue agency to them.

IRS officials generally institute asset freezes after trying and failing to collect tax delinquency using more conservative debt collection practices. Many taxpayers often realize that their bank accounts are frozen when they receive bounced checks or otherwise attempt to perform a banking transaction without success. 

 

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