Unpaid Back Taxes

Unpaid Taxes: What to Expect and How to Resolve Back Taxes

Unpaid taxes can be stressful and frightening. What happens if you can’t pay? Will the IRS take your assets? Close your business? Can you go to jail for unpaid taxes?

These are all valid questions. However, while it’s important to note that the IRS has extensive ability to recoup unpaid taxes, the agency is also willing to work with taxpayers.

Don’t worry. We can help you. If you have unpaid taxes, contact us at the W Tax Group today. We can guide you toward the best option and help you negotiate with the IRS.

Why Do People Have Unpaid Taxes?

There are a few situations where you might have unpaid taxes:

• You have filed a return but have not paid the taxes.
• You have not filed a return or paid the taxes.
• The IRS has assessed a tax against you and you haven’t paid it yet.
• You have significant gambling winnings but did not set aside enough money to cover the taxes for those winnings.

An assessment typically happens when the IRS modifies your tax return or files a substitute return on your behalf.

What If a Deceased Person Has Unpaid Taxes?

In some cases, people die while owing back taxes to the IRS. Or even if they don’t owe back taxes, they may owe taxes on income earned before their death. If you are a surviving spouse, an heir, or an estate executor, you need to understand how to deal with the decedent’s final tax liability and any back taxes they may owe. 

What If You Marry Someone Who Owes Back Taxes?

Unfortunately, marriage isn’t just about love and compatibility. It’s also about personal finances. If you’re thinking about marrying someone who owes back taxes, you should find out how the taxes may affect you before you get married. For example, once you get married, the IRS may be able to seize your tax refunds for your new spouse’s unpaid taxes unless you take certain actions.

What Happens If You Have Unpaid Taxes?

If you have unpaid taxes due to an assessment, the IRS will send you an assessment notifying you of the tax bill. You have a certain amount of time to appeal if you disagree. If you don’t start the appeals process, the IRS will send you collection notices.

These notices start off relatively friendly, but they get much more severe over time. Eventually, depending on how much you owe, the agency will send you a final notice and intent to levy like the CP504B. This means that the IRS is ready to start seizing your assets or taking other severe collection actions against you.

If you filed your return and haven’t paid the taxes, you won’t receive an assessment. The collection process will just start with collection notices. The IRS may also assign your account to a private debt collection agency, and they will contact you on behalf of the IRS to resolve your tax debt.

What If I Can’t Pay My Taxes?

If you can’t pay your taxes, the IRS will assess penalties and interest. The agency may also try to collect the debt without your cooperation, for example by garnishing your wages or seizing your assets. However, there are lots of different options for people who can’t pay everything right away. There are also options for people who can’t afford to pay anything right now.

What Are the Penalties for Unpaid Taxes?

Penalties for unpaid taxes can include interest, fees, tax liens, assets seizures, and more. The penalties vary depending on how much you owe and your history of tax compliance.

• Failure-to-file penalty — If you don’t file a return, the IRS can assess a failure-to-file penalty. This is 5% of the tax due, up to a maximum of 25%.
• Failure-to-pay — This penalty applies when you file a return but don’t pay. It’s just 1% of the tax due. It can also get up to 25% but that takes over two years of nonpayment.
• Interest — the IRS assesses interest on all unpaid taxes. Interest even continues to accrue if you set up a payment plan.
• Tax lien — A legal claim to your assets registered with your local courthouse. This happens before a levy.
• Tax levy — When the IRS garnishes wages, seizes bank accounts, or levies other assets.

The IRS has more power than almost any other type of creditor, and if you have unpaid taxes, you should try to make arrangements before the agency starts issuing liens or seizing assets.

Consequences for Unpaid Taxes Based on How Much You Owe

The consequences for unpaid taxes can vary based on how much you owe. To reduce its losses, the IRS tends to be much stricter with taxpayers who have large unpaid tax liabilities. Here’s what to expect based on how much you owe:

When You Owe Less Than $25,000 in Unpaid Taxes

If you owe less than $25,000, you will typically qualify to set up an installment agreement. This allows you to make monthly payments on the tax bill.

When You Owe Between $25,000 and $50,000 in Unpaid Taxes

In most cases, the IRS will also let you make payments if you owe between $25,000 and $50,000. However, you generally have to set up direct debit from your bank account or agree to a payroll deduction. If not, you will have to provide detailed information about your financial situation so the IRS can decide if it’s willing to accept your payment plan.

When You Owe Over $50,000 in Unpaid Taxes

When you owe over $50,000 in back taxes, the IRS usually won’t accept a payment arrangement unless you provide a full financial disclosure. At this level of unpaid taxes, the IRS may also take your passport or use other severe collection tactics.

When You Owe Over $100,000 in Unpaid Taxes

If you owe over $100,000, the IRS can issue tax liens and involuntarily collect the unpaid tax through wage garnishments or asset levies. The agency can also tell the State Department to revoke your passport. To avoid that, contact the IRS to make arrangements. At this level of tax debt, you will generally need to provide financial disclosures to apply for a payment plan. If you cannot afford a payment plan and have limited income and assets, you may qualify for an offer in compromise or a partial payment installment agreement.

What to Do If You Have Unpaid Taxes?

If you have unpaid taxes, you shouldn’t hide. The situation is always easier if you’re proactive when dealing with the IRS. Here’s what you should do:

File Unfiled Returns

If you haven’t filed, you’ll need to file a return to figure out how much you owe. Luckily, you don’t have to file decades worth of returns. If you haven’t filed in a long time, the IRS typically only needs the last six years of returns.

Find Out How Much You Owe

In a lot of cases, people have filed their returns, but they aren’t sure how much they owe. To make a plan, you’ll need to contact the IRS to figure out what your tax liability is. Keep in mind that due to interest and penalties, it will be more than the amount you owed when you originally filed.

Explore Your Resolution Options

Once you know how much you owe, you can decide which resolution option is best for you. If you’re comfortable, you can apply for many options on your own. But generally, the process is easier and more likely to be successful if you work with a tax resolution specialist.

What Are the Options to Resolve Unpaid Taxes?

The right option varies based on your situation. Here are some of the potential tax resolution options.

Get the IRS to Write Off Your Tax Liability

The IRS writes off millions of tax bills every year, but it’s important not to get tricked by companies who use these claims unscrupulously. Usually, you can only get your tax bill written off if you qualify for hardship or currently-not-collectible status, a partial payment installment agreement, or an offer in compromise.

Wait for the Statute to Expire

There is a statute of limitations on tax collection. Typically, the IRS has about 10 years to collect your tax bill. Generally, going under the radar for a decade is not worth it. However, you may be able to leverage an approaching statute expiration to reduce your tax liability.

Apply for an Installment Agreement

An installment agreement is when you make monthly payments on your tax liability. The IRS usually lets taxpayers take up to six years to pay, but in some cases, you can take longer.

You can only have one installment plan at a time. However, if you incur an additional tax bill when you’re already making payments on an installment agreement, you will need to ask the IRS to add the new balance to your existing plan. 

Consider Requesting Innocent Spouse Relief

If all of the unpaid taxes are due to the actions of your spouse or ex-spouse, you may qualify for relief under this program. Keep in mind that you must prove that you didn’t know about the taxes or that you were coerced into doing nothing.

Ask for Penalty Abatement

Even if you don’t qualify for any of the programs where the IRS writes off some or all of your tax liability, you may be able to reduce your tax bill through penalty abatement. The IRS never removes penalties unless you specifically request it. So, you need to be proactive about applying for penalty abatement.

What to Do If You Have Unpaid State Taxes?

The rules and resolution options vary based on the state where you owe the taxes and the type of tax owed. If you have unpaid state taxes, your state’s department of revenue should have a website where they outline options. Unfortunately, many state websites lack information and are hard to navigate. A tax professional licensed to practice in your state can help.

Get Help With Unpaid Taxes

Regardless of why you have unpaid taxes, we can help. The tax attorneys at the W Tax Group have extensive experience helping clients with unfiled returns, delinquent taxes, incorrect assessments, and other tax issues. Need help with unpaid taxes? Let’s talk. Give us a call to set up a free consultation today.

You file your taxes the year after they are incurred – for example, you file 2024 taxes in 2025 – and if you don’t pay enough throughout the year, you may owe at tax time. An attorney can help you set up payments or explore other relief options, but if you want to avoid a tax bill moving forward, you may want to touch base with a pro about tax planning during the tax year – not at filing time.