Owe More than $100,000
Consequences and Resolution Options
What If You Owe the IRS Over 100K in Taxes? Resolutions and Consequences
Being in any amount of debt to the IRS is overwhelming, but when you owe them over $100,000, it’s an entirely different situation. For most people, the thought of ever paying off that much in debt is impossible—especially with the threat of levies, liens, and passport revocation hanging over your head.
However, even when you owe this much money in back taxes, you have options. The sooner you begin exploring these options and figuring out how to tackle your tax debt, the sooner you can get some relief and prevent more aggressive collection actions.
Consequences of Owing the IRS Over $100,000
The IRS will go to significant lengths to recover the money owed to them, particularly when it’s a large sum of money. Generally, the more you owe, the more aggressive you can expect the IRS to be when they start collection efforts.
Understanding the potential consequences of this level of debt can motivate you to get in touch with a tax attorney and come up with a payment arrangement before you risk further collection actions. Here’s what can happen:
Revenue Officer Involvement
Revenue Officers are IRS employees who are tasked with making home visits, filing tax liens and levies, collecting delinquent taxes, conducting interviews, and otherwise ensuring tax compliance on the part of taxpayers. They have significant power in the IRS, and they are often assigned to cases where the tax bill is very high—for example, over $100,000.
The type of Revenue Officer you get assigned to your case is largely dependent on luck. Many are fair but firm, empathetic to your situation, and committed to securing a payment arrangement that satisfies the IRS and meets your needs. However, you also run the risk of having your case assigned to an overly zealous IRS agent who will push for liens and levies while fighting against any outcome other than payment in full.
Why is this such a serious outcome? For most people who owe tax debt, their debt is handled by the IRS’s automated collection system (ACS). The ACS can send notices or even initiate some liens and levies, but once your case is assigned to a Revenue Officer, you actually have someone reviewing your account on a regular basis and deciding when to move forward with more aggressive collection actions. In general, cases assigned to Revenue Officers move much more quickly than those still within the IRS’s automatic system.
Penalties and Interest
Penalties and interest are never a good outcome—even those who only owe a few thousand dollars are annoyed at seeing these numbers increase with each subsequent tax bill. But when you owe more than $100,000 to the IRS, these numbers can snowball out of control very quickly.
Imagine you file your taxes on time by April 15 but do not pay off your tax bill. One year later, your payoff amount will be over $114,000 once you factor in late payment penalties and interest. Keep in mind that the IRS compounds interest daily, which results in much faster accrual of interest than other creditors.
The situation is even worse for those who do not file on time, since the faiure-to-file penalty is higher than the failure-to-pay penalty. Imagine you have $100,000 in tax debt and do not file until October, since you’re worried about filing without being able to pay. In that case, the late filing penalty would drive up your amount due to about $125,000.
The failure-to-file and failure-to-pay penalties are capped at 25% of your initial balance due. But they can stack on top of each other, which means your bill could end up at $150,000—before interest.
Passport Revocation
The more debt you owe, the more likely you are to have your passport revoked by the State Department. The IRS wants to prevent people with seriously delinquent tax debt from fleeing the country and refusing to pay their debt.
As of 2024, the IRS considers seriously delinquent tax debt to be any unpaid federal tax debt of $62,000 or more. This amount is adjusted each year to account for inflation. Once the IRS has filed a Notice of Federal Tax Lien, they are legally permitted to refer your case to the State Department for passport revocation.
Levies and Liens
Levies and liens are very likely outcomes when you owe the IRS more than $100,000. A lien gives the IRS a legal claim against all of your property, including your cash on hand, wages, home, vehicles, retirement accounts, and other assets.
A levy occurs when the IRS actually seizes your property. For example, they may seize your home or vehicle, sell it, and use the proceeds to pay down your tax debt. If they levy your wages, they will send a garnishment order to your employer and have everything except a small exempt amount sent to them each pay period. They may also freeze your bank account and take all of the funds in it.
Loss of Tax Refunds and Contractor Payments
When you owe the IRS money, you should expect them to intercept your state and federal tax refunds and apply them to your tax debt. This also affects government contractors, as their vendor payments may also be seized by the IRS.
How Can I Handle Over $100,000 in Tax Debt?
While the thought of paying down more than $100,000 in tax debt may seem overwhelming or even impossible, there are always options that may be available to you. The sooner you begin looking into your options and talking to a tax attorney about the best choice for you, the more flexibility you may have.
Reduce Debt Via Penalty Abatement
Penalty abatement is definitely an option to explore if you qualify. The IRS offers first-time penalty abatement and reasonable cause penalty abatement. The first-time option is suitable for those who have consistently filed and paid their taxes on time, only to fall behind and get with penalties during the tax year in question.
The IRS may then be willing to waive the penalties as a one-time courtesy due to your history of compliance with IRS regulations. Reasonable cause penalty abatement is a bit different—rather than being based on your past compliance, it’s offered when you have a good reason for getting behind on your taxes.
You may qualify if you were unable to get necessary paperwork to file or pay your taxes, there was a death or serious illness in your immediate family, or you were the victim of a natural disaster. Penalty abatement is always an excellent option for taxpayers, but when you owe more than $100,000, it can save you a massive amount of money.
Dispute Liability
It’s possible that the debt is not yours, was calculated incorrectly, or is otherwise not your responsibility. If you have serious doubts as to the credibility of the bills the IRS is sending you, it may be worth talking to a tax attorney to figure out your next steps.
Explore Payment Options
Although the IRS would prefer to take payment in full, they are also willing to explore different payment arrangements that allow them to collect in full or in part, depending on your financial ability. The options available to you depend on your income, how much you owe, your assets, and your ability to sustain ongoing payments moving forward.
Payment Options When You Owe the IRS More than $100,000
Unfortunately, having this much debt can make it significantly more challenging to come to payment arrangements with the IRS. That doesn’t mean it’s impossible—however, depending on the option you select, you may need to provide substantial financial information to the IRS.
Installment Agreement
Most taxpayers that fall behind on taxes look into this option, as it allows you to pay off your tax debt in full. Note that the process is more complicated for those whose debt is more than $100,000. If you owe $50,000 or less, you can typically apply online and get an instant decision.
But if you owe $50,000 or more to the IRS, you will need to submit forms via mail to the IRS and wait for a final decision from them. Alternatively, you can fill out the forms and call the IRS with the info. If you have the financial ability to do so, you can make a payment to get your debt to $50,000 or less and then apply online.
The first form you’ll need to fill out is Form 9465, Installment Agreement Request. This is a straightforward form that requests your identifying information, the totally amount of debt you have, and your minimum payment—which is the total amount of debt divided by 72. You’ll also need to provide basic information, such as your pay schedule, net income, and the amount of people in your household.
In addition to Form 9465, you will need to submit Form 433-F, Collection Information Statement. This is a very detailed financial form that requests information on your bank accounts, lines of credit, real estate, wage information, other household income, and monthly living expenses. The IRS generally requires this for larger installment agreements to ensure that you are capable of making your monthly payments—when the minimum monthly payment is no less than $1,388 per month (100,000/72), that is a substantial amount to commit to every month.
Defaulting doesn’t leave you in any better position than when you started; the IRS can then terminate your installment agreement, demand payment in full, and move forward with levies and liens.
Offer in Compromise
If you are unable to pay your tax debt in full even when it’s spread out over six years, consider proposing an offer in compromise. Applicants approved for an offer in compromise agree to pay a lower amount, either in one lump sum or in monthly payments, based on their financial ability. Since this payment option is based on your financial capacity to pay, the IRS does require a significant amount of information.
The forms you need to fill out include Form 433-A, a Collection Information Statement for Wage Earners and Self-Employed Individuals. This is generally the most time-consuming part of the package, requiring information on your bank accounts, cash on hand, investments, personal assets, equity, income sources, and monthly expenses. The IRS will consider your income, monthly expenses, and equity when determining how much you are able to pay.
You’ll also need to fill out Form 656, which breaks down the amount you are offering and the payment terms. After you submit the forms to the IRS, they will process your financial information and determine whether or not your offer is reasonable. If it is, they will notify you and request the rest of your payment. If they decline, they will either send back an offer they consider reasonable or decline your application outright.
Currently Not Collectible
Those who are unable to make any progress on their tax debt due to their financial situation may qualify for currently not collectible status. This temporarily pauses the IRS’s collection actions. Penalties and interest will continue to accrue. The IRS does check in on your financial situation periodically, and once they believe you are able to resume payments, they will expect you to make other arrangements.
Partial Payment Installment Agreement
A partial payment installment agreement requires monthly payments, but it’s intended for those who cannot afford the minimum payment required for a standard installment agreement. The amount you pay is dependent on your financial ability, and you make payments until the Collection Statute Expiration Date.
Once you have reached the CSED, the IRS stops attempting to collect on the rest. As is the case with currently not collectible status, the IRS does check on your financial status from time to time. If your situation changes significantly, they may require you to pay the rest of your tax debt.
Payment Options That Are Not Available to You
The main option that is not available to you when you owe more than $100,000 in taxes is an online installment agreement. Because you don’t qualify to set up payments online, the process takes considerably longer when you owe this much, and the amount of paperwork and documentation is significantly greater.
When You Need to Talk to a Tax Professional
If you owe 100K in taxes, it’s definitely time to talk to a tax professional. At this level of tax debt, you are at risk of losing a sizable portion of your assets, your freedom to travel outside the United States, and the vast majority of your wages.
Since you’re likely to have a Revenue Officer assigned to your case at this level of debt, these consequences may come much faster than they would for someone with less tax debt. A tax attorney will understand the severity of your situation and the importance of moving quickly. With their experience and education, you can rest a bit easier knowing that you are one step closer to addressing your tax debt.
When you choose W Tax Group for your significant tax debt, know that you are choosing to work with a team that has handled a wide range of incredibly complicated tax issues. We understand the stress that comes with this amount of tax debt, and we want to help. Set up a free consultation by calling us at 877-500-4930 or contacting us online.
