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IRS holding millions of dollars in frozen taxpayer accounts

December 7, 2014

The 2015 filing season is less than two months away (we hope!), but the Internal Revenue Service still is holding on to taxpayer cash from previous years.

A lot of cash.

A Treasury Inspector General for Tax Administration (TIGTA) report released just before Thanksgiving reveals that Uncle Sam's tax collector is holding millions of dollars in individual accounts and billions in business accounts essentially in limbo.

These so-called frozen credit accounts — $46.4 million in connection with individual taxpayers and $1.6 billion connected to business accounts — mean that some of the taxpayers are still waiting for refunds, says TIGTA.

Freeze-frozen-money

Even more frustrating, according to TIGTA, is that in these cases the IRS did not take actions that could have resolved the taxpayers frozen account situations sooner.

"By improving adherence to its processing procedures and making improvements to certain computer systems, the IRS can minimize resolution delays for many frozen credit accounts," said TIGTA Inspector General J. Russell George in a statement accompanying the report.

Although the business amount is substantially larger, since the ol' blog tends to focus on individual taxes, the $46.4 million earns this week's By the Numbers (dis)honor.

Cold cash tax complications: TIGTA undertook this audit to determine what actions the IRS has taken to resolve both individual and business taxpayer accounts with certain frozen credits.

The tax watchdog office notes that the IRS' Master File computer system uses coding to identify special situations, commonly referred to as freeze conditions. These apply to a taxpayer account that either requires special handling by the IRS or for which the IRS is awaiting the outcome of a future event — for example, the IRS needs to post an additional assessment or the taxpayer is in bankruptcy proceedings — before returning to normal processing of the return.

"However, if freeze conditions are not adequately identified and resolved, IRS processing actions such as assessments, abatements, refunds, credit offsets, status updates for compliance activity, issuance of notices, and/or suspension of statutes can be adversely affected," says TIGTA.

In plain English, that means that if the IRS doesn't properly note and deal with frozen accounts on a timely basis, folks are left waiting for tax cash.

IRS agrees with most recommendations: To be fair to the IRS, it's not always an easy task. There are more than 60 freeze conditions that could apply within the business or individual master files.

TIGTA, however, came up with 10 recommendations it says could help alleviate this issue. They include the IRS reemphasizing existing procedures for processing freeze conditions, establishing and enforcing new procedures for processing some freeze conditions, and making improvements to computer systems.

The IRS agreed with most of the TIGTA suggestions. The only one the agency balked at was related to its computer systems because, wait for it, it doesn't have the resources to make such improvements.

You can check out the recommendations and the IRS' responses starting on page 43 (page 48 in the PDF numeration) of TIGTA's report.

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TAX-SAVVY WAYS 
TO WRAP UP 2026

It’s over! With October’s extended filing deadline behind us, it is now time to focus on year-end moves to reduce your 2026 tax bill. 

You’ll find ways to do just that on the Tax Tips page (see the More Tax Posts drop-down menu at the top of the blog), as well as the separate tax tip pages for each month, notably October through December. If you’re on the Tax Tips page, you’ll find a monthly list at the end of this column. If you’re on another blog page, you can head straight to the October tips; at the bottom of that tips page you’ll find links to all the other 11 months’ collections of tax advice.

Not to spoil what you’ll find in that tax advice, but it does cover such things as tax deductions for charitable donations, investment moves that could reduce tax due, and ways to max out your tax-favored retirement savings. 

Finally, as the year winds down, things get hectic. There are lots of other things to occupy our time, like the much more fun upcoming holidays. But don’t lose sight of taxes, since timing is key. To be of use, most tax moves must be made by the end of the tax year. That’s Thursday, Dec. 31, which also is the last business day of the year. 

So that you don’t miss that final tax year deadline, also keep an eye on the countdown clock below. It will keep you on top of just how much time is left to make important, tax-saving moves. (Note: I’m in the Central Time Zone, so adjust accordingly for where you live.)

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