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17 November 2015

Can the IRS Freeze My Bank Account?

Can the IRS Freeze My Bank Account?

Last month we discussed when and how the IRS can freeze a tax refund. But did you know that the IRS can freeze your bank account as well? It’s called an IRS bank levy and it represents an actual seizure of your money from your bank account, if the IRS finds it necessary.

For a clear picture of how an IRS bank levy can happen, here are four things you should know:

  1. The IRS will give fair notice. Only, it’s up to you to pay attention. The IRS will notify a taxpayer of a bank levy by mail. Because this notification is time sensitive, it’s usually sent via certified mail. After that, a 21-day waiting period for complying with the levy is usually allowed to give you time to contact the IRS and arrange to pay the tax or notify the IRS of errors in the levy. Bottom line: Never ignore mail from the IRS, especially certified mail.
  2. Once the IRS levy is in effect, it is instantaneous. According to the IRS, funds in a bank account are frozen as of the date and time the levy is received. However, the levy does not affect funds added to a bank account after the date of the levy. In other words, the bank account can still be used to deposit and withdraw money that was added after the levy was placed on the account. 
  3. The IRS and your bank work together more closely than you may think. Your bank is required to notify the IRS on certain types of transactions, including cash payments over $10,000 in a trade or business, without notice to you. Certain foreign transactions are also reported. The practice is part of the Bank Secrecy Act, which is summarized on the IRS website.
  4. Fighting an IRS bank levy is often worth doing. In February 2015, the IRS apologized for seizing the bank accounts of small businesses for simply making routine bank deposits of less than $10,000. To the IRS, that routine activity was a red flag designed to catch drug dealers and money launderers. However, many of those business owners did nothing wrong. It was reported that, in some cases, the bank accounts were frozen for years without any formal charges. The news brought to light two issues. First, the IRS can seize accounts without much of a reason. And, second, not fighting the levy can be a compelling admission of guilt, in the eyes of the IRS.

The bottom line is to pay attention to the information the IRS sends to you. Act fast if it appears the IRS is considering levying your bank account or other assets. For additional questions, contact us.

Image Copyright:  kwanchai123rf / 123RF Stock Photo


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