What can the IRS do to collect unpaid tax debt?
Dealing with unpaid tax debt can feel like carrying an invisible weight on your shoulders. If you ignore the issue long enough, each passing day can make that weight heavier as interest and penalties accumulate. While millions of Americans find themselves in this situation each year — whether due to financial hardship, confusion about tax obligations or simple oversight — the consequences of ignoring tax debt can be severe and far-reaching.
The Internal Revenue Service (IRS) has significant powers when it comes to collecting unpaid taxes, and, unlike other types of debts, it can be tough to get rid of tax obligations through bankruptcy. The IRS also has various tools at its disposal to recover what they're owed and these tools are quite different from what the average debt collector has.
That said, if you owe the IRS but can't pay, the situation isn't hopeless. There are a few pathways for taxpayers to resolve their outstanding tax debt, and knowing what these options are — as well as what the IRS can do to collect on unpaid tax debt — is crucial for anyone facing tax difficulties.
Speak with a tax relief specialist about your options now.
What can the IRS do to collect unpaid tax debt?
The IRS starts the collection process by sending a series of letters demanding payment. These notices outline the amount owed, any penalties and interest that have accrued and the steps you should take to resolve the debt. If the tax debt remains unresolved, the IRS has numerous other collection strategies that can be used to try and recoup what's owed, some of which can significantly impact your financial well-being.
For starters, they can file a federal tax lien, which is a legal claim against your property, including personal property, real estate and financial assets. This lien automatically arises when you fail to pay your tax debt after receiving a bill and it can severely damage your credit score and make it difficult to sell or refinance property.
Beyond liens, the IRS can implement levies, which are actual seizures of your property or income. Or, they might garnish your wages, meaning they can legally require your employer to send a portion of your paycheck directly to the IRS. The IRS can also intercept future tax refunds, revoke your passport if you owe more than a certain amount and even share information about your tax debt with credit bureaus.
In addition, the IRS can seize money from your bank accounts, retirement accounts and even Social Security benefits. While certain amounts are exempt from seizure to ensure basic living expenses can be met, the impact of these other types of seizures can still be devastating.
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How to get rid of your delinquent IRS tax debt
The IRS has numerous tools that can be used to collect on delinquent IRS tax debt, but there are also several legitimate ways to address your lingering tax debt before the collection efforts escalate. Some of those options start with the IRS itself.
The IRS offers various programs designed to help taxpayers resolve their obligations. For example, installment agreements allow you to pay your debt over time via monthly payments, which can make the burden more manageable. Or, those facing genuine financial hardship might qualify for the Offer in Compromise program, which can enable you to settle your tax debt for less than the full amount owed. Qualifying for this program requires meeting strict criteria, however.
While you can apply for these types of programs on your own, working with a reputable tax relief service may be preferable, as it can significantly improve your chances of successfully resolving tax debt. These professionals understand the intricacies of tax law and IRS procedures, and they can help determine which resolution options best fit your situation. They can also negotiate with the IRS on your behalf, potentially securing more favorable terms.
Tax relief services can also help ensure that all paperwork is filed correctly and deadlines are met or help you apply for programs like Currently Not Collectible status if you're experiencing severe financial hardship. Or, they might identify errors in your tax assessment that could reduce your overall debt. While their services do come with a cost, the potential savings and stress reduction often make it a worthwhile investment for those facing significant tax debt.
The bottom line
Unpaid tax debt isn't something you can ignore. The IRS has powerful collection tools, and if you fail to take action, they may employ those tools to try and collect what's owed. However, there are solutions available to help you get back on track. Whether it's setting up a payment plan, negotiating a settlement or working with a tax relief professional, taking steps now can prevent serious financial consequences in the future.
