Account Frozen by the Tax Office? Here Is What You Should Do Now!

In principle, all enforcement measures are available to tax authorities:

- Account seizure

- Seizure of assets

- Wage garnishment

For business owners, the tax office will proceed by way of account seizure; additionally, a bailiff may seize moveable or immoveable property. Wage garnishment is only an option for part-time self-employed individuals who also hold a job subject to social insurance contributions.

The tax office will seize your account if you fail to settle demands by their due date or within the reminder period. As a rule, unpaid tax demands give rise to enforcement proceedings. The type of tax is immaterial. In addition, this enforcement measure can result from a penalty payment that has been imposed but not paid.

Two aspects of an account seizure by the tax office are particularly worth noting:

- First, the Fiscal Code (Abgabenordnung) provides for a short payment period. Under § 259 AO, it is sufficient for the authority to give you one week's notice before enforcement commences. If it sent a reminder before the amount fell due, it can initiate a seizure immediately from the due date.

- Second, tax authorities do not need to apply to a court for an enforcement order. The tax assessment itself serves as the enforcement title. On this basis, you will receive a garnishment and collection order.

Because of these two special features, only a few days may elapse between the due date or the expiry of the payment period and the commencement of seizure. Accordingly, give tax debts a high priority — try to settle the outstanding demands promptly!

If self-employed individuals owe money to the tax office, they must expect an account seizure. In practice, officials typically proceed first with an account seizure; only later does a bailiff appear for a potential seizure of assets.

In the first step, your tax authority carries out an account enquiry to identify all your personal and business accounts. It then sends each of the banks, as third-party debtors, a garnishment and collection order. The service providers then block the relevant credit balances and transfer the funds to the tax office.

The seizure is unlimited in scope. If, as a sole trader, you hold several personal current and savings accounts as well as a business account, the seizure covers all of them. Should your credit balance be insufficient, the bank will also block incoming amounts thereafter.

The only partial protection is afforded by a private seizure-protected account (P-Konto) — the relevant bank observes the exemption threshold.

First, the bad news: tax authorities take a strict approach with taxpayers who are in arrears. Whereas debtors generally have good prospects of agreeing a payment plan with private creditors, a tax office will only grant instalment payments or a deferral within narrow limits.

Once enforcement has been initiated, the authority may agree to a postponement of enforcement in certain circumstances. A compelling reason must exist for this: for example, a business's very existence is threatened because it is simultaneously dealing with the consequences of a flood disaster or a pandemic. It is not sufficient for a business to be experiencing difficulties of its own making: the tax office requires an additional external factor.

For sole traders and smaller companies, personal reasons such as serious illness may also lead to a postponement of enforcement. Important: the tax office requires a written application with a well-reasoned justification. In this application, business owners must also demonstrate that they are able to settle the debt within a foreseeable period. Ideally, leave all communication with the tax authority to experienced tax advisers!

Before enforcement commences, there is the option of applying for a deferral (Stundung). Here too, sufficient justification is required.

A private seizure-protected account (P-Konto) guarantees those affected a certain exemption amount for their daily living expenses. Are you holding a garnishment and collection order from your tax office? Have one of your personal current accounts converted into a P-Konto immediately, so that you have funds available as a private individual to pay, for example, your rent!

The seizure exemption threshold is 1,330.16 euros (spring 2023). If you are liable to pay maintenance for one or more children, this threshold can be increased upon application.

Ideally, those affected should act before the tax office proceeds to seizure against the self-employed. Contact Guhr Steuerberatung to discuss the appropriate course of action!

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