Can I Stop the IRS from Freezing My Assets?

What does it mean when the IRS “freezes” my assets?

When people say the IRS has “frozen” their assets, they are usually talking about a levy. A levy is a legal seizure of property or rights to property to collect an unpaid tax debt.

Depending on the situation, the IRS may be able to levy or seize:

• Money in a bank account.
• Wages, salary, commissions, or other income.
• Business assets and accounts receivable.
• Retirement accounts in some situations.
• Certain federal payments, including some Social Security benefits.
• Personal property such as a car or boat, and in more limited situations, real estate.

Not everything can be taken. Federal law protects certain property and payments from levy, and there are extra restrictions on seizing a principal residence and certain business assets. The IRS also generally cannot seize property unless it expects the sale to produce money that can be applied to the tax debt after the costs of seizure and sale.

Does the IRS have to warn me before it levies my property?

Usually, yes. Before most levies, the IRS generally must first assess the tax, send you a bill demanding payment, and give you an opportunity to pay or make arrangements. If the balance remains unresolved, the IRS generally sends a Final Notice of Intent to Levy and Notice of Your Right to a Hearing at least 30 days before the levy.

That final notice is especially important because it can start the deadline for requesting a Collection Due Process, or CDP, hearing. The exact notice and deadline matter, so do not assume that every IRS letter mentioning a levy is the same thing.

For example, a CP504 warns that the IRS intends to levy certain property and can take a state tax refund, but the IRS generally must issue a formal notice giving CDP hearing rights before most other levy action. Common final levy notices include LT11, and Letter 1058, although the IRS uses several notice types.

There are exceptions to the normal 30-day pre-levy hearing process. The IRS may levy first and provide appeal rights afterward in certain situations, including jeopardy collection, a state tax refund levy, certain federal contractor levies, and some employment tax levies. This is one reason it is important to read the exact notice you receive and respond by the date shown on it.

Can I stop a levy before it happens?

Often, yes, but the best option depends on the tax debt, your finances, your filing history, and how far the IRS has gone in the collection process. The sooner you respond, the more options you may have.

Pay the balance in full.

Paying the tax debt in full is the most direct way to stop collection on that balance. If you cannot pay everything at once, there may be other ways to resolve the account.

Request a payment plan.

An IRS installment agreement lets you pay the balance over time. With certain exceptions, the IRS is generally prohibited from issuing a new levy while a payment plan request is pending, while an approved plan is in effect, for 30 days after a request is rejected or terminated, and while a timely appeal of that rejection or termination is being considered.

To qualify for a payment plan, you generally need to have filed all required tax returns. Depending on the balance and the type of agreement, the IRS may also ask for financial information.

Consider an Offer in Compromise if you qualify.

An Offer in Compromise, or OIC, may allow some taxpayers to settle a tax debt for less than the full amount owed. With certain exceptions, the IRS generally cannot issue a new levy while a processable OIC is pending, for 30 days after a rejection, or while a timely appeal of the rejection is pending.

An important limitation: submitting an OIC does not automatically release a levy that was already served before the offer was submitted. If a levy is already in place, you may still need to request a release separately.

Ask for a temporary collection delay if you are in financial hardship.

If paying the IRS would keep you from covering basic, reasonable living expenses, the IRS may place your account in Currently Not Collectible status and temporarily suspend most collection activity. The IRS may ask for detailed information about your income, expenses, bank accounts, property, and other assets before approving the request.

Currently Not Collectible status does not erase the debt. Penalties and interest generally continue, the IRS may review your finances later, and a federal tax lien may still be filed.

Request a Collection Due Process hearing.

If you receive a final levy notice that gives you CDP rights, you generally have 30 days from the date stated on the notice to submit Form 12153, Request for a Collection Due Process or Equivalent Hearing. A timely CDP request generally stops the IRS from levying the property involved while the hearing is pending and preserves the right to ask the U.S. Tax Court to review the Appeals determination.

At a CDP hearing, you may be able to raise collection alternatives such as a payment plan or Offer in Compromise. In limited situations, you may also be able to dispute the underlying tax liability if you did not previously have a chance to do so.

If you miss the normal CDP deadline, you may still be able to request an Equivalent Hearing within one year of the notice. An Equivalent Hearing can still provide an Appeals review, but it generally does not stop levy action by law and does not provide the same right to Tax Court review. Current IRS guidance also recognizes limited situations where a late request may still be treated as timely if extraordinary circumstances beyond your control caused the delay.

Use other collection appeal rights when available.

The IRS Collection Appeals Program, or CAP, may be available before or after certain levy or seizure actions. CAP can move faster than CDP, but it has different rules and generally does not provide a right to go to Tax Court if you disagree with the decision.

What happens if the IRS already levied my bank account?

A bank levy is different from a wage levy. When a bank receives an IRS levy, it generally freezes the funds that are available for withdrawal at the date and time the levy is received, up to the levy amount. Normally, money deposited after that date is not affected by that same bank levy.

The bank generally holds the levied funds for 21 days before sending the money to the IRS. That waiting period is designed to give time to resolve issues such as an IRS error, a dispute over who owns the funds, or a request to release the levy.

The 21-day period should not be treated as extra time to ignore the problem. If a bank levy has already been served, contact the IRS or your authorized tax professional immediately. Once the bank sends the money to the IRS, getting it returned can be nearly impossible, although appeal and return-of-property procedures may still be available in some situations.

When is the IRS required to release a levy?

The IRS states that it must release a levy when it determines that one of several conditions applies, including when:

• The tax debt has been paid.
• The legal collection period ended before the levy was issued.
• Releasing the levy will help you pay the tax.
• You enter into an installment agreement and the terms do not allow the levy to continue.
• The levy is creating an economic hardship because it keeps you from paying basic, reasonable living expenses.
• The property is worth more than the amount owed and releasing the levy will not prevent the IRS from collecting the balance.

A levy release does not cancel the underlying tax debt. Unless the balance is paid or otherwise resolved, the IRS may be able to take collection action again later.

What if the IRS is garnishing my wages?

A wage levy is usually continuous. The IRS serves the levy once, and part of your wages may continue to be sent to the IRS each pay period until the debt is paid, another arrangement is made, the collection period ends, or the IRS releases the levy. Federal law protects a portion of wages from levy, and the amount exempt depends on your filing status, number of dependents, and pay period.

If the wage levy is preventing you from paying basic living expenses, contact the IRS immediately and ask about a hardship release or another collection alternative.

Can the IRS levy retirement accounts or Social Security?

In some circumstances, yes. IRS guidance lists retirement accounts among property that may be subject to levy when the taxpayer has a vested right to the funds. Certain federal payments, including some Social Security benefits, may also be subject to levy. Different rules can apply depending on the type of account or payment, so this is an area where the details matter.

What should I do if I receive a levy notice?

Do not ignore it. Even if you cannot pay the balance in full, responding before the deadline may give you a chance to stop enforced collection and move the account into a formal resolution.

Start by:

1. Reading the exact notice number, date, and response deadline.
2. Confirming which tax years and balances are involved.
3. Checking whether you still have time to request a CDP hearing.
4. Making sure all required tax returns are filed or being addressed.
5. Gathering income, expense, bank, and asset information if hardship is an issue.
6. Contacting the number on the notice, or your authorized representative, as soon as possible.
7. Acting immediately if a bank levy has already been served because of the 21-day holding period.

If you are already in bankruptcy, tell the IRS immediately. A bankruptcy filing generally stops many collection actions, including certain levies, while the automatic stay is in effect, although bankruptcy rules and tax debts can be complicated.