Being indebted to the Internal Revenue Service (IRS) in the amount of more than $50,000 is an extremely serious tax matter with heavy consequences. The IRS employs a wide variety of tactics in their collection of past-due taxes, such as imposing penalties, interest charges, tax liens, wage garnishment, seizure of assets, and even revocation of passport. Fortunately, taxpayers also have some remedies against these matters.
Immediate consequences of indebtedness of more than $50,000
After the tax debt mounts to over $50,000, the IRS steps up collection activities:
- Interest and penalties: 0.5% per month, to a 1% per month failure-to-pay penalty if a Notice of Intent to Levy is issued, to 25% of the account balance. An example is an account of $50,000 increasing to up to $12,500 in penalties alone over some period. Tax due and penalty interest are compounded daily and is paid when it is levied.
- Tax liens: The government may impose a tax lien on real property, motor vehicles, and real property of a taxpayer, burdening the government’s interest in debtors’ property. This harms credit reports and lending is made difficult.
- Garnishment and seizure of assets: The IRS can exercise wage garnishment power and seizure of assets such as bank deposit accounts and personal property in order to collect taxes owed.
Revocation of passport
Taxpayers who have “seriously delinquent” tax accounts of $65,000 or more are subject to passport sanctions through 2025. The IRS may notify the State Department of such amounts, and the State Department will lead to passport application denials or even confiscation of a passport that’s already in a taxpayer’s possession. The measure highlights the value of timely payment of large tax bills.
Resolution options
Having a debt of over $50,000 is punitive, but taxpayers do have a couple of alternatives to get back in the IRS’s good graces and settle their tax obligation:
- Installment agreements: Taxpayers can make arrangements to pay in installments to the IRS. More than $50,000 needs to have a Collection Information Statement (Form 433-A) to report the financial status.
- Offer in Compromise (OIC): Settlement, whereby the amount received is less than the full amount of tax debt if payment in full would lead to economic hardship. The qualification standards are income, expenses, property equity, and overall ability to pay.
- Non-Streamlined installment agreements: Non-streamlined installment agreements are in fact offered by the IRS, in amounts of $50,000-$250,000 possibly without cash flow requirement but with filing of a federal tax lien.
Preventive measures and recommendations
Prevent increase of tax balances and charges owing by:
- Payment filing and on time timely: Clear all taxes falling due before the respective dates or before it to eliminate all arrears on time and pay no addition of interest and penalty.
- Consult a professional: An appointment with a tax consultant or lawyer can be availed by an individual for personal advice according to one’s own financial condition.
- Stay current: Stay current through IRS bulletins and notices from time to time to remain cognizant of any shift in tax policy or law that can affect one’s burden.
