The New Year brings state employees back into the office. The holidays are over which means the Department's "unofficial" nice period has ended. This means collectors are back to full "enforcement activities" after primarily just making calls to taxpayer about balances due for most of November through the end of December. While "enforcement activity" could include criminal investigations, for taxpayers that owe the Department money - from final audit assessments or unfiled/unpaid returns - this primarily will involve bank freezes. I have seen that the Department started freezing bank accounts the day after Department personnel returned to the office. In dealing with the Department recently, it appears that there are more bank accounts that have been frozen than what the Department can deal with. This article addresses Florida Department of Revenue (FDOR) bank freezes in what to expect and how you can deal with it.
As noted above, collections activity starts with an amount that is owed to the Department. FDOR sales tax audits provide for protest rights. If those protest rights expire or otherwise are not exercised, then at a certain point following protest deadlines, protest rights lapse and audit findings become a final audit assessment that is subject to collections as it is an amount due. Should any FDOR notice or audit workpapers not be properly issued, then there could be an argument that protest rights still expire. That is a separate subject for its own article. Apart from audits, liabilities arise from filed but unpaid returns. Unfiled returns can/will result in estimated tax (and associated penalty and interest) for the period(s) with unfiled returns. Collectors will generally follow up with mailed notices and phone calls about the returns that need to be filed and/or the amount due. Unfiled returns could also attract the attention of a criminal investigation.
Assuming all returns were filed and were not paid or only partially paid, the Department can (and usually does) freeze a taxpayer's bank account to try and collect the amount due. The bank freeze process starts with a notice going to banks to freeze an amount due for a taxpayer identified by name and FEIN (federal employer identification number). The freeze will attach to all accounts the taxpayer has - checking and savings. Also, the freeze will apply separately to each account so whatever amount is frozen will be for each account meaning the Department could freeze more than what is owed. This can create an unfair situation the Department usually doesn't necessarily work quickly to address and clear up. The freeze most likely results in a negative balance showing up on the account when online banking is referenced. Many taxpayers believe the money is "gone" when it only is simply unavailable to the taxpayer. However, the Department will move quickly to levy the account for what is in it up to the amount that is owed to the Department (or frozen as the Department sometimes freezes for less than the full amount on the taxpayer's account depending on filed tax liens for the business/account). The Departments seems to prefer to file bank freezes on Thursday afternoons as that is when payroll is in the account before Friday paydays.
When a you or your client realizes its bank account is frozen, steps need to be taken immediately to resolve the situation. Clearly, full payment of what is owed (after filing unfiled returns). Assuming full payment cannot be made, then the liability and filing issues need to be identified to be corrected. The first major "issue" will be getting that information from the Department. As noted above, the Department froze many bank accounts already this year and its short staffed so dealing with bank freezes depends on when the collector can (and will) respond. Not having access to money or funds creates immediate issues for paying employees or vendors and staying in business so reopening the account makes time of the essence. This makes any delayed Department response even more stressful and hard to understand for business owners and tax professionals. Recently, it took four days for a collector to follow up on a frozen bank account - after many emails, phone calls, and voicemails.
When you can speak with a collector, getting all of the account issues should be the first step. A ZT09 is a report from the Department that will show liabilities by period (audit liabilities are summarized in total for the last month of the audit period). The ZT09 will include a column for "delinquent (estimated)" tax. This will be the indicator that the Department has not received a return for that period. The taxpayer will need to verify if it actually failed to file and/or pay a returns for the period(s) identified. If a return was filed then the copy of the filed return should be provided to the collector. A similar problem arises to verify if payments were received by the Department. This will require a bit of work by the taxpayer - and the collector. I have seen some collectors indicate to taxpayers that the taxpayer simply must pay the amount due or set up a payment plan (stipulated payment agreement commonly referred to as "stip" or "stip agreement").
When all necessary returns are filed and processed by the Department (could be days up to two weeks depending on the number of returns and how busy collectors are), the the taxpayer has to provide information. The Department can (usually does) provide Form ZT20 which is a Request for Financial Information. This will identify the federal returns to be provided (usually last two years' filed returns), last six months' bank statements, financial statements (income statements and balance sheets), and a proposed payment plan to resolve the liability. The Department's "default" terms are 25% of the balance down with the balance paid over 11 months or less. The need for a longer period or inclusion of a balloon payment will require financial information justifying the need for the payment plan (per the Department's confirmation and agreement). The proposed payment plan will be the amount of the down payment, the monthly payments (amount and duration) and what day of the month the payments will be due. It is important to note that there is no guarantee for a payment plan. The Department is able to accept or decline a payment plan in its discretion. The proposal will be made to a Department collector and then shared with a supervisor. Note that unfiled returns will prevent a proposal from being considered. Unfiled returns would void a stip agreement so that has to be resolved first (as noted above).
When terms are agreed, the down payment has to be made to the Department. Ideally, those funds are in the account already. IF so, then the Department prepares an Authorization to Release and sends that to the taxpayer. The taxpayer signs it instructing the bank to send a certain amount from its account directly to the Department. The Department signs the release to authorize the bank to release the taxpayer's account with the issuance of the identified funds to it. If the funds are not in the account, then the amount has to be paid to the Department over the phone via credit card (convenience fee additional based on the amount paid) or money order/cashier's check. The release goes to the bank's legal department who should process the release to allow the taxpayer access back to the account within hours. Some banks are more difficult than others so follow up should occur to help confirm receipt of the release by the bank and expedite the release. Usually this isn't an issue, but I have seen cases where bank's legal/garnishment departments indicate they don't have release. Any unnecessary delay can compound problems as noted above - in addition to additional bank charges.
The above process generally is applicable to all bank freezes. However, there can be a number of many nuances based on the particular issues with the particular's account issues. This can/will include prior defaulted stip agreements or account payment/filing deficiencies that might or might not have been related to the current liability leading to the bank freeze. The more the issues, the more time it could take to resolve. Please also note that particular service centers handle collections differently then others. For example, I have seen some service centers have the payment plan process also include/require information related to prior audit findings. I question the appropriateness of mixing what would be a more "audit" type function with collections. However, this highlights the inherent imbalance of power during a bank freeze. The taxpayer needs to work with the Department to release its bank account but the taxpayer must be prepared for the Department to question and challenge every aspect of a proposed payment plan from the taxpayer.
We have significant experience with FDOR collection activities. While there is a need to start working on releasing a bank freeze as quickly as possible, that should not be done without at least some idea on what the taxpayer can potentially use to its advantage in trying to arrange the most reasonable payment plan possible to resolve the situation. We offer free initial consultations that can help prepare you or your client for the process to expedite this as much as possible by avoiding unnecessary delays on information or steps that need to be taken.
About the author: Mr. Parker is a partner in the Law Offices of Moffa, Sutton, & Donnini, P.A., based in the firm's Tampa office. Mr. Parker's practice concentrates on sales and use tax and includes criminal defense of sales tax cases and state tax audits/controversies proceeding from audit through administrative litigation involving sales and use tax and all other state taxes including reemployment tax, communication service tax, and cigarette & tobacco tax. Mr. Parker also handles matters involving the Department of Business and Personal Regulation and Office of Financial Regulation and the industries they oversee. Mr. Parker received his accounting degree, law degree, and L.L.M. in Taxation from the University of Florida. You can lean more about Matthew on his firm bio.
About the law firm: At the Law Office of Moffa, Sutton, & Donnini, PA, our primary practice area is Florida taxes, with a very heavy emphasis in Florida sales and use tax. We have defended Florida businesses against the Florida Department of Revenue since 1991 and have over 100 years of cumulative sales tax experience within our firm. Our partners are both CPAs/Accountants and Attorneys, so we understand both the accounting side of the situation as well as the legal side. We represent taxpayers and business owners from the entire state of Florida. Call our offices today for a FREE INITIAL CONSULTATION to confidentially discuss how we can help put this nightmare behind you.
Frozen Bank Account in Florida
FL DOR to use "collection analytics" to levy funds faster, published March 6, 2012, by James Sutton, CPA, Esq.
FL DOR Discloses Confidential Taxpayer Info?, published November 17, 2013, by James Sutton, CPA, Esq.
FL DOR Evaluates Collection Agents by What?, published June 10, 2014, by James Sutton, CPA, Esq.