Ten Annoying Tax Debt Consequences
It is super easy to ignore the IRS when you owe taxes on income you have earned. Most people think that contacting the IRS just exacerbates the problem. It’s a delay and procrastination tactic.
With years of experience, I am here to tell you that everyone should be more terrified of ignoring the issue than addressing the issue directly.
The IRS can always force your hand towards repayment with tools-like federal tax liens, levies, and wage garnishments which are all calculated after compounded with penalties and interest.
The IRS has multiple tools at their disposal with immediate contact. They offer extensions, monthly payment plans, and even hardship programs.
Want to risk it all and still ignore the IRS? Below are ten likely consequences with outcomes.
1. Notices
By law, the IRS has to notify a delinquent taxpayer with snail mail. These pieces of mail are a constant minor nuisance. The tactics will elevate
2. Collection
The iRS has an Automated Collection System (ACS) if you continue to ignore the snail mail. ACS will begin to mail you notices on its behalf, this enforcement extensions possesses the capacity of issuing liens, garnish wages, and levy bank accounts.
3. Refund Collection
Good news, you can involuntarily reduce your outstanding tax bill, penalties, and interest by allowing the IRS to take your refund in a later year. This collection tactic will also be used if you are in a payment agreement plan.
4. Interest, Interest, and Interest
Depending on the person you ask, a tax refund is essentially a zero percent annual loan to the government. This all changes if you owe. The amount owed will be exposed to an annual interest rate. The interest never goes away .
5. Penalties
There is a failure to pay penalty (0.5% per month) during the initial communication process. The penalty rate doubles once you continue to ignore the methods of communication by the IRS. The rate drops back down to 0.25% monthly once a payment plan is established.
6. The Federal Tax Lien
In most circumstances, the IRS won’t use the following tactic if the amount owed is less than $10,000. The goal of the government is to enter you into a payment plan. If the payment plan doesn’t occur, a Notice of Federal Tax Lien is a tool which the IRS uses to address an account which is overdue. It automatically alerts creditors about the existence of overdue tax debt. This ensures that the IRS has claim to your assets if you attempt to sell or borrow against it. This tactic is to damage your credit report.
This lien will not go away even in the event of a bankruptcy.
7. Money and Asset Seizure
In cases where the money owed is significant enough, the IRS will perform an asset seizure. In most cases, the IRS only seizes money as property seizure is a huge hassle due to the selling process.
All forms of seizure are forms of levies. Below are the three levies the IRS employs.
Wage Garnishment- The IRS takes some of your wages until you enter into an agreement with them. The levy stops once a payment plan is established.
Accounts Receivable – Essentially this is when the government steps in and collects monies as a payment processor from you as a small business or independent contractor on services rendered. Your clients have no idea they are doing this, but it is designed to grab your attention and enter into a long repayment agreement with the IRS.
Bank Levies- Imagine the government cleaning out your accounts periodically. This stops when you enter into a payment agreement.
These levies are designed to create painful hassles and disrupt your cash flow for both day-to-day operations and business operations.
8. Revenue Offices
These individuals are the IRS employees who have the authority and resources to enact liens and levies. Each of these officers have multiple years of investigatory experience to examine back taxes, unfiled taxes, and continued tax negligence. They typically show up and provide deadlines for actions.
9. Don’t Plan on Traveling Abroad
With the assistance of the State Department, the IRS can now label individuals as “ Seriously Delinquent.” Being added to this list usually comes at the cost of owing the government more than $51,000 coupled with previous collection efforts and no payment agreements in place.
The State Department will prevent the renewal of your passport, restrict your ability to obtain one, or even renew one.
10. Debt Collections
If you happen to elude the IRS for years, the IRS will turn your account over to a private debt collector. This invites calls from strangers at all different times of the day numbers associated with you. This creates years, if not decade of hassle.
