What to Do if the IRS Freezes Your Assets as an Expat (2024)

How would you feel if you found your bank account frozen? After all the sweat and the sacrifice, you make after hours of working and putting together all your resources only for the IRS (Internal Revenue Service) to freeze them. Can the IRS freeze your foreign bank account?

When you delay paying your taxes, the IRS can access your bank account, savings, or assets such as a house or a car. They can take your salary before it gets to your pocket. Two, they can place a tax lien on your personal property. Finally, they can freeze your bank account and use the money to pay your tax due. When you move overseas, the IRS does no longer has such power.

However, don’t believe that your money is safe just because it is in an offshore bank account. The IRS can issue a levy to any bank within the US. If you’re an account holder of a foreign bank that has a branch in the US, the IRS can easily issue a levy notice to the US office and empty your account overseas.

Related: How could the IRS find out that I amnot tax compliant as an expat?

The IRS can also seize the bank accounts in countries that signed Mutual Collection Assistance Request Agreements. The countries that signed this agreement include Canada, France, Denmark, Sweden, Netherlands, and the U.K. It is important to note that the Canadian government will not assist if the taxpayer was a Canadian citizen at the time the liability arose.

In this article, we will talk about why the IRS would seize your bank account, the steps they would take, what you can do when the IRS freezes your bank account, and if there is a reason to worry.

It is paramount for you to understand your rights and the steps to take if your bank account is frozen. The IRS will never just freeze your bank accounts out of the blue. You will receive multiple notices. Moreover, the IRS freezing foreign bank accounts is extremely rare. What you might have already come across is the FATCA letter which we’ll speak about later.

The reasons IRS freezes a Bank Account

The IRS can access and seize your bank accounts for only one reason, which is unpaid taxes.

The IRS will levy your assets in the situation where:

  • You did not file a tax return.
  • Are you in debt because of a tax error?
  • If during an audit the IRS agent finds suspicious activities in the records and you fail to give credit information
  • Stopping to make payment on a planning agreement
  • After exhausting any other method to recover the tax issue
  • Failure to report the correct tax amount
  • If you cannot pay your taxes, it is paramount to communicate with the IRS early enough. Failure to communicate will lead to the freezing of your account
  • If you violate the Bank Secrecy Act of 1970. It states that financial institutions should report any suspicious activity on an individual

The IRS will freeze all your bank accounts, including those joint accounts, even if the other party does not owe the IRS. Once the IRS freezes your account, you cannot access your money until the levy is no longer on you.

The IRS will send you several notices before seizing a bank account. Although you want to make sure that you can still be reached at the address shown on your last tax return, to ensure that you do receive these notices.

What can I do if the IRS threatens to freeze my Bank Account?

There are several methods to stop the IRS from freezing your accounts. They include:

  1. Appeal for a Collection Due Process hearing. When the IRS sends the final notification, you have 30 days to appeal for a hearing. With the help of a tax professional, you can get yourself out of the levy.
  2. Pay all the tax due. If it is possible, pay the IRS what you owe them to avoid penalties and accruing interests.
  3. Consult with a tax professional to help you arrange with the IRS to pay your tax liability in installments.
  4. Suppose you prove that freezing your accounts will create enormous financial difficulties. If you show an eviction notice or your inability to settle your bills, the IRS will back down. However, this is not a permanent solution. You may get frequent reviews.

The procedure of freezing your account

The IRS has protocols to follow before they freeze your account and it takes time. They will first go through your tax records. If there’s something the IRS disagrees with on your tax returns, you’ll receive a notice. If you do not act upon the first notice, they will send another. Eventually, you will send a notice informing you that they will levy your money or assets. The final notice also includes a warning telling you of your rights to a fair hearing to explain yourself. You will receive the final notice a month or so before they freeze your accounts.

If you still do not appeal or pay the tax due after the notice, they take action and freeze any bank account associated with you.

What can I do if IRS freezes my bank account?

After your bank accounts are frozen, the next question is, what can I do to unfreeze them? The best thing to do is to consult a tax attorney, a tax professional, or you can reach out to the IRS directly. Reaching out to the IRS is not a good idea because the negotiation may cost you a lot of time and money.

Usually, the IRS will freeze your bank accounts for 21 days. If you do not want to lose your money, it would be best to sort out the issue before 21 days are over. If you do not, the bank sends all the frozen funds to the IRS, together with interest.

With the help of a tax professional, if you appeal early, you will get back all your money without any of the deposits getting affected.

How long can the IRS freeze your Bank Account?

After you receive the notice and the 30 days pass, the IRS freezes your funds for 21 days. After which, the bank sends all your funds or assets to the IRS, including the interests.

If there is not enough money to pay the tax debt in your bank account, the IRS goes after your property and salary.

The good news is that in 21 days, you can appeal or settle your debt, and the IRS will release your bank accounts.

Why did my foreign bank send me a “FATCA” letter and a request for a completed W-8 or W-9?

The Foreign Account Tax Compliance Act introduced in 2010 requires all non-US Banks to search their records for suspected US persons and forward their information to the IRS. We wrote about it in 2015 already!The FATCA letter is a letter from your foreign bank requesting certain information regarding your US tax status.

You must complete the forms truthfully. The letter doesn’t mean your account will be frozen. The banks must only provide your account information to the IRS. Due to privacy laws, the banks cannot send the information to the IRS directly. They will be sent to the local tax authorities first and the local tax authorities will forward the information to IRS. The whole process takes about 6 months, so if you weren’t compliant by the time you received the FATCA letter, you have about 6 months to bring your into compliance before the IRS contacts you.

What to Do if the IRS Freezes Your Assets as an Expat (2024)


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