IRS SAYS IT CAN FREEZE A REFUND

The IRS has advised that it can legally freeze a refund when the IRS has proposed (but not assessed) a trust fund recovery penalty against a taxpayer. See CCA 200908045. The IRS contends it is not required to immediately issue a refund. It is the position of the IRS that it can freeze the refund so it can offset the taxpayer's refund against any subsequent trust fund recovery penalty assessment. We are seeing this in other cases besides the trust fund recovery penalty. A taxpayer can adjust the taxpayer's withholding so there cannot be a freeze. From a practical point of view, a taxpayer should not allow the IRS to keep the taxpayer's money during the year.