The last thing anyone wants to see when doing their income taxes is that they owe money to the IRS. It can be tempting to just ignore the situation. After all, there is no debtor's prison in the United States.
However, the IRS is not powerless when it comes to collecting taxes it believes you legally owe. You could suffer dire financial consequences for not addressing the situation, and the longer you wait, the worse it can get.
What can the IRS do about your tax debt?
First, it is important to know that the IRS will not contact you by telephone, email or text when initiating discussions regarding your tax debt. If you receive these types of communications, be suspicious. Scam artists fraudulently contact individuals in your position attempting to extort money. Instead, the IRS will first contact you at the address listed on your tax return. If you ignore these notices, the following could happen:
- The agency will add interest and penalties to the original amount you owe, which will increase the longer the balance remains unpaid.
- Ordinarily, the IRS will only file a Notice of Federal Tax Lien on amounts over $10,000, but it does reserve the right to file such a notice on lesser amounts as well.
- If you receive a refund in a different tax year, the IRS can seize that amount to put towards the amount of back taxes you owe.
- The IRS could put your account into its automated collection system, which could include levies on your bank accounts and garnishments on your wages. If you have a business, the agency could put a levy on your accounts receivables.
- Recently, the IRS gained the ability to have your passport rescinded or your application for one could be blocked. This is ordinarily done if you owe $51,000 or more.
- After some time, you could receive a visit from a revenue officer.
- If you let the balance remain unpaid for a few years, your account may transfer to a private collection agency, which often comes with numerous phone calls and other debt collection activities.
Filers rarely receive a discharge of back taxes in a bankruptcy. As you can see, the IRS has numerous avenues available to it when it comes to collecting back taxes. Instead of ignoring them, you could take a more proactive stance. An Illinois tax attorney can help you find a solution that works best for you and your financial situation.