What to Expect When You Can’t Pay the IRS in Henderson, NV
Owing a debt to the IRS can lead to costly penalties and serious consequences. When tax debt cannot be paid in full, an attempt to make a payment arrangement should be made as soon as possible.
Expectation for On-Time Tax Payments
Each year, individual tax returns are due by April 15 except when that day falls on a holiday or weekend. Any taxes owed must also be paid by that date. It is possible to request an extension to file taxes, but that does not normally extend the time to pay taxes owed. At least 90 percent of expected tax liability or 100 to 110 percent of the amount paid for the previous year must accompany the extension request to avoid a penalty for failure-to-pay.
The IRS starts charging interest and penalties the following day on taxes not paid with a submitted tax return. This penalty assessed is 0.5 percent of the amount owed and is applied monthly until the maximum of 25 percent of the balance is reached. When a tax return is not filed and taxes are owned, the IRS monthly penalty is 5 percent of the balance owed.
Interest is also assessed on the past due tax debt. The interest rate is the federal short-term rate plus 3 percent, which makes it about 4 percent in total. This rate can increase if the federal short-term rate increases at any point during a quarter.
Intent to Levy Notice
The IRS sends the delinquent taxpayer an intent to levy notice. If the taxpayer fails to respond within 10 days, the failure-to-pay penalty will increase to 1 percent. If the taxpayer sets up a payment arrangement with the IRS, the 0.5 percent penalty will be reduced to 0.25 percent.
Consequences of Not Paying Tax Debt
The IRS has an Automated Collection System (ACS) that mails warning notices to delinquent taxpayers. The first notice sent includes the amount owed and a demand for payment. Each subsequent notice over the next two to six months will become more demanding and threatening. If the taxpayer ignores the request for payment the IRS could:
- Place a tax lien on the taxpayer’s assets
- Send the taxpayer a final notice of intent to levy 30 days before initiating a tax levy that could lead to: Wage garnishment; Bank levy; Asset seizure
- Take steps to begin criminal prosecution for tax evasion or fraud
- Suspend or revoke the taxpayer’s passport
- Withhold future income tax refunds to satisfy tax debt