The Consequences of Owing Taxes to the IRS: Worst-Case Scenario

As Benjamin Franklin rightly said, “in this world, nothing can be said to be certain, except death and taxes.”

Although the IRS wasn’t established until 1862, Franklin’s 1789 quote is timeless and still applies today: if you owe taxes, the government will use the full extent of the law to get the money they are owed.

Penalties for non-payment of taxes are severe. Wage garnishments, liens, bank levies, seizure of assets, and even jail time are all on the table for those unfortunate taxpayers who lack the funds to pay their balances on-time or in-full. And, the aggressive collection actions from the IRS include numerous phone calls and letters, adding to the stress of your financial burden.

So, what exactly can the IRS do to taxpayers who pay late, file late, or don’t pay their taxes at all?

IRS penalties and interest fees

One of the most important things to understand about late filing and non-payment/under-payment of your taxes is that generally, the longer your taxes go unpaid, the more money you will owe. Monthly late fees and daily interest charges continue to grow your balance so that some taxpayers end up owing significantly more than the original tax amount.

Also, different actions (or non-actions) have different penalties. For instance, let’s say that you filed your tax return on time but failed to pay the full amount you owed. In that case, the late penalty is .05% of the total amount owed. This amount continues to grow each month as long as the taxes remain unpaid, up to a whopping 25%.

If you owe the IRS taxes but you failed to file a tax return, the failure-to-file penalty is 5% of the total monthly amount, up to 25%. As if that wasn’t bad enough, if you still haven’t filed your tax return after 60 days you’ll pay a minimum of $135 or 100% of the taxes you owe, whichever is less.

For those taxpayers who both file late and pay late, their balance is subject to a total penalty of 5% of the total amount of taxes owed (the failure-to-file penalty is decreased by .05%). Again, the situation gets even worse for those who are delinquent past 60 days: they can be assessed a penalty of up to 100% of the total amount owed.

IRS collection actions

Unfortunately, the IRS has even harsher courses of action than penalties and interest to use against delinquent taxpayers.

Up first is a federal tax lien that allows the IRS to notify your creditors through public record that the government has first claim to all your current and future assets. This can make buying a new home or car difficult and can even prevent some employers from hiring you.

Another way the IRS will try to recoup their losses is through a federal tax levy where they seize your property and assets. This levy can be applied against your wages, your bank account, future tax returns, and even your retirement accounts. They can also seize physical property like your house, furnishings, car, boat, and any other property that they can re-sell.

In extreme cases where tax evasion is suspected, the IRS can even launch a full criminal investigation into the debtor which can result in asset seizure and jail time.

Free initial consultation for your tax-related issue

The good news is that some taxpayers are eligible for penalty relief. At the law offices of Robert V. Boeshaar, we perform a Case Evaluation for our clients to determine whether you are eligible for relief from the severe penalties the IRS imposes. Contact us today online, in-person, or by phone to schedule your free consultation to find how we can help you.

Written by Robert V. Boeshaar

Robert V. Boeshaar

Robert V. Boeshaar is a Seattle tax attorney committed to helping individuals and small businesses who are facing problems with the IRS. He believes in using his experience to serve others and to make a difference in their lives.