Representatives of the Tax Authority or local authorities knock on your door, or worse – you discover one morning that your bank account has been completely seized. This alarming scenario often occurs precisely in the midst of legal proceedings, where you are appealing the amount of tax or the liability itself.

Is the Authority permitted to take active enforcement and collection measures while your matter is being adjudicated in the District Court? What legal protections are available to you, and how can you sue the Authority if it acts unlawfully? This article presents a complete and up-to-date legal overview.

The Fundamental Rule: Disputed Tax May Not Be Collected

Contrary to the common perception that state authorities have unlimited power to collect funds at any time, the basic and prevailing rule in Israeli tax law is unequivocal: a tax debt that is in dispute is not collectible until the assessment proceedings are fully concluded [577, 578, 580].

Pursuant to Sections 183 and 184 of the Income Tax Ordinance, a taxpayer who has filed an objection or appeal against an assessment is required to pay only the “balance of tax that is not in dispute” [580, 582]. The disputed tax debt remains frozen in the taxpayer’s hands [580]. It becomes final and collectible only upon completion of the entire assessment process, and if an appeal has been filed with the court – only after a final judgment has been rendered by the District Court [578, 580, 582].

This principle has been repeatedly affirmed in court rulings, including the leading judgments Assessing Officer v. Shimon Belulu [580, 673] and Assessing Officer Beer Sheva v. Muhammad Al-Alayan [580, 894], which established that the taxpayer’s right to litigate the dispute protects them from active collection pressures as long as the legal proceedings are pending [579, 580, 584].

The Exception to the Income Tax Ordinance: Early Collection Under Section 194

The only way in which the Assessing Officer may deviate from the freezing rule and take early collection measures before a decision on the appeal is by exercising the exceptional authority granted under Section 194 of the Income Tax Ordinance (“Collection of Tax in Special Cases”) [583, 673, 676].

Due to the drastic nature of this section, which severely infringes upon the taxpayer’s property rights before their case is decided, it has been established in case law (led by the well-known Hachamei precedent in the Supreme Court) that it must be used with **”restraint, moderation, and utmost caution”** [580, 595].

To justify the use of Section 194, the Authority must prove the existence of two cumulative conditions [583, 677]:

1. A reasonable and prima facie well-founded assessment: The assessment cannot be arbitrary or capricious and must rest on a solid factual foundation [579, 583]. In the Hachamei case, it was determined that rumors alone or the mere existence of an unresolved civil monetary claim against the taxpayer do not constitute a sufficient foundation [579, 592, 596].
2. A real and well-founded concern that the tax will not be collected in the future: The State must present clear indications of concern regarding asset concealment, the taxpayer’s planned departure from the country, or other conduct indicating frustration of collection [580, 583, 676, 678].

Lien Versus Physical Seizure of Property

In 2014, as part of Amendment 200 to the Ordinance, the court was authorized to order not only a lien on assets (which creates only a procedural barrier in registration), but also physical seizure of the property [583, 908, 913, 914]. However, seizure is an extreme remedy that will be granted only if the court is convinced that “a lien is insufficient” to secure collection [583, 908, 913]. In accordance with the principle of proportionality, courts will always prefer a less intrusive alternative (such as converting seizure into registration of a lien and pledge) [913, 929, 930].

The Parallel Balance in the VAT Law: Withholding Tax Refunds (Section 91)

The Value Added Tax (VAT) Law also freezes active collection proceedings during an objection or appeal [581]. However, the legislature created a different balance in Section 91(a)(2) of the Law, which grants the VAT Director an administrative right of retention to withhold excess input tax refunds due to the taxpayer, up to the amount of the disputed tax [855, 860, 865, 870].

In the leading judgment CA 870/02 Tnuva v. VAT Director, the court clarified that this right of retention is intended to balance the taxpayer’s right not to be subjected to aggressive collection pressure against the Authority’s duty to protect the public purse from frivolous appeals designed solely to delay tax payment [581, 858, 864, 871].

Limited judicial intervention: The court will intervene in such withholding of refunds only in extremely exceptional cases, for example, when the taxpayer proves that withholding the funds causes severe and irreversible harm to the ongoing operation of their business [857, 858, 876].

The Taxpayer’s Legal Remedies Against Unlawful Collection

In cases where the Authority (Tax Authority or municipality) acts contrary to law and imposes aggressive liens during a pending appeal, the taxpayer has several courses of action:

A. Immediate Procedural Relief: Urgent Application for Stay of Proceedings and Cancellation of Liens

The taxpayer is entitled to immediately petition the District Court where the assessment appeal is pending, with an urgent application for a mandatory or prohibitory injunction ordering cancellation of the administrative liens and release of the seized assets until final resolution of the case [584].

B. Claim for Damages in the Tort of Negligence (The Correct Legal Framework)

In cases where it has been proven that the Authority was negligent in imposing the lien or in delaying its removal, the taxpayer has a well-founded tort claim [587, 588, 642]. Courts have determined that a public authority owes an enhanced duty of care to the citizen, and must exercise its drastic collection powers with the utmost care and diligence [946].

• Test case – Yarin Cohen judgment (2026): In the judgment TADM 25855-03-25 Yarin Cohen v. Jerusalem Municipality [934], a municipal inspector mistakenly recorded an incorrect license number on a parking ticket (a difference of only one digit) [936, 937]. The municipality sent the payment demands to the remote city of Kiryat Shmona, and the mail was returned with the notation “addressee has moved” [937, 938]. Despite this, the municipality did not attempt to locate the plaintiff by additional means and imposed a lien on her bank account [937, 948]. The court determined that the municipality was negligent and awarded the plaintiff damages for the distress caused to her [936, 950].

The Shift in Case Law: Lien Claims – In Negligence, Not Defamation

For many years, taxpayers filed claims regarding erroneous liens under the Prohibition of Defamation Law, arguing that presenting a person as a “payment refuser” to the bank severely harms their good name and financial credibility [588, 589, 664].

However, recent case law has undergone a dramatic and binding change:

1. The Visuli precedent (2025): In the leading judgment of the Haifa District Court, CA 59033-12-24 Aviad Visuli v. Bank Leumi [615], it was clearly determined that the Prohibition of Defamation Law is not the appropriate framework for adjudicating damages from a lien imposed unlawfully (or not removed in time) [587, 590, 618].
2. The court’s reasoning: The judges determined that forcing lien damages into the framework of defamation law is forced and foreign to the purposes of the law [588, 637, 642]. Additionally, liens imposed pursuant to decisions of registrars or courts are protected under the “permitted publications” and absolute immunity in Section 13(5) of the Law [616, 654, 657].
3. The operative result: The correct, proper, and sole avenue for a claim regarding damages from erroneous liens is the tort of negligence under the Torts Ordinance [587, 590, 618, 642]. Within this framework, the court is authorized to award the taxpayer appropriate compensation for non-pecuniary damage (distress, inconvenience, and infringement of autonomy), even without proof of precise and actual financial damage [587, 618, 646].

Bottom Line and Practical Tips for the Taxpayer

• Pay the undisputed portion: To benefit from the freezing of collection on the disputed amount, you must ensure that any undisputed amount has been paid to the Authority in full [585].
• Act quickly in the District Court: In the event of an unlawful administrative lien, do not wait. File an urgent application for stay of proceedings and cancellation of the lien with the District Court where the appeal is pending [584].
• Sue under the negligence framework: If the lien was imposed negligently or not removed within a reasonable time, file a tort claim in negligence and demand compensation for the distress, embarrassment, and inconvenience caused to you [587, 618, 646].