Owing money to the IRS is always a daunting and stressful experience. Unlike other creditors, the IRS has extensive powers to collect unpaid taxes, and the consequences of ignoring your tax debt can be severe.
The IRS is word’s most effective and profitable debt collection agency and can collect debt in ways that are not imaginable to most people.
In this article, we’ll explore the actions the IRS can take against you and why it’s crucial to address your tax debt promptly.
The IRS Collection Process
When you owe taxes, the IRS typically follows a standard collection process:
- Notice and Demand for Payment: The IRS will send you a bill outlining how much you owe, including any penalties and interest.
- Collection Notice: If you don’t pay after receiving the initial bill, you’ll receive a series of increasingly urgent notices.
- Final Notice: Before taking enforced collection actions, the IRS will send a final notice giving you 30 days to pay or appeal.
Consequences of Unpaid Tax Debt
If you fail to respond to IRS notices or make arrangements to pay your debt, the IRS has several powerful tools at its disposal. This range from taking money directly from your account, checks to taking any property you might have such as assets, cars and more.
Let’s take a look at these potential actions:
1. Tax Liens
The IRS can file a Notice of Federal Tax Lien, which:
- Attaches to all your current and future assets
- Appears on your credit report, damaging your credit score
- Makes it difficult to sell or refinance property
- Can affect your ability to obtain loans or credit
Tax Liens are very difficult to deal with mainly because they’re aimed to make your life hard. You can imagine it like IRS making a point that you’re not going anywhere without thinking about the money you owe to them. Additionally, liens are very difficult to get rid of, making your already complicated situation even worse.
Generally, you don’t want to let your tax debt get to this point and it’s best to avoid it by contacting the IRS or enrolling in the IRS Fresh Start program to get tax relief.
2. Tax Levies
The IRS can seize your assets through a levy, including:
- Wage garnishment (taking money directly from your paycheck)
- Bank account seizures
- Seizure of personal property (cars, boats, etc.)
- Seizure of real estate
Levies are basically a type of collection. When you don’t contact the IRS or work with them to reduce your debt, the IRS will attempt to seize anything you own. This situation usually is not reversible, meaning if the IRS takes your money from your bank account, you won’t be able to get it back.
As mentioned before, it’s best to use Fresh Start Program to not let your tax debt get into this stage.
3. Passport Restrictions
For seriously delinquent tax debt (generally over $55,000), assuming you haven’t made any payments or not responding to the IRS, the IRS can:
- Certify your debt to the State Department
- Cause your passport application to be denied
- Result in revocation of your current passport
This is generally a worse case scenario and will make it impossible for you to go on any trips or even get a passport to use as identification.
4. Penalties and Interest
In Alesure, we call penalties and interests the “slow death”. This is the interest and fee added to your existing debt, creating a vicious cycle of impossible to pay debt.
Just check out our IRS Debt Interest Calculator tool to see how much in interest you’ve paid so far and how much you’ll pay if you don’t deal with your IRS debt.
Your tax debt will continue to grow due to:
- Failure-to-pay penalties (typically 0.5% of unpaid taxes per month)
- Interest charges (federal short-term rate plus 3%, so far in 2025, that’s a total of 9%)
- Additional penalties for not filing returns
The Importance of Taking Action
Ignoring your tax debt will only make the situation worse. The IRS has a 10-year statute of limitations for collecting most tax debts and they know it, so they will aggressively pursue collection during this time.
Our tax relief services can help you navigate the complex world of IRS debt resolution. Here’s what we do for you:
- Expert evaluation of your tax situation
- Negotiation with the IRS on your behalf with the help of our in-house tax professionals and CPAs
- Get you the best possible deal, either eliminating your debt using the Offer in Compromise or reduce it significantly.
Owing money to the IRS is a serious matter with potentially life-altering consequences. From damaging your credit to seizing your assets, the IRS has significant power to collect unpaid taxes. However, there are options available to resolve your tax debt and regain control of your financial future.
Remember, the sooner you address your tax debt, the more options you’ll have for resolution.
Don’t let fear or uncertainty keep you from taking action. Our team of tax professionals is ready to help you navigate the complexities of IRS debt and work towards a brighter financial future.
