Owing over $100,000 in taxes can be terrifying. If you don’t take any action, the IRS will issue a tax lien, and you will lose your passport. The agency may also garnish your wages, seize your bank account, and start levying your assets. To protect yourself, you need to make arrangements to pay your tax bill or get your account marked as uncollectible. The sooner you take action, the better.
The right solution varies based on your situation, and at Damiens Law, we are committed to helping our clients find the best options for their tax problems. To get personalized help right now, contact us today. We have been helping clients deal with the IRS and state tax agencies for over 10 years, and we can help you regardless of how much you owe.
Key Takeaways for Taxpayers who owe over $100,000:
- Penalties can get up to $50,000+.
- Interest will accrue on your account based on the current quarterly rate.
- The IRS will issue a federal tax lien.
- The IRS may levy (seize) bank accounts, wages, or personal and real assets.
- The IRS can tell the State Department to take away your passport.
- You will not receive any tax refunds.
- A revenue officer may be assigned to your case.
- You will probably have to submit a financial disclosure to set up a payment plan.
- You will need to complete a financial disclosure to settle or get into non-collectible status.
Consequences — What If You Owe the IRS Over $100,000
The timeline can vary based on your compliance history and how much you owe over the $100,000 threshold. It can also vary based on how busy the IRS is. However, you can expect to pay a significant amount of money in penalties and interest, as well as potentially having a lien placed on your assets or losing your assets to a levy. The IRS may also revoke your passport and intercept tax refunds to use toward your debt.
In many cases, you may not hear anything right away, but as soon as you start getting notices, the situation can get very serious very quickly. Here’s what you can expect:
Penalties and Interest
Penalties and interest start accruing the day after the tax is due. The failure-to-pay penalty is 0.5% of the tax due per month, and it increases to 1% per month if you receive a Notice of Intent to Levy. This penalty can get up to 25% of the balance. That means if you owe $100,000, the penalty will be $500 or $1,000 per month, and it can get up to $25,000 in total.
The failure-to-file penalty is even more severe, adding 5% of your unpaid taxes to your balance each month. This penalty maxes out when it reaches 25% of your balance.
Interest will accrue on the tax liability as well as the penalties, and it will also compound which means that interest accrues on top of interest. The IRS interest rate is the federal short-term rate plus 3%. As of July 2024, the current interest rate is 8%, resulting in approximately $8,300 interest on $100,000 of tax debt, since interest on taxes compounds daily.
If you owe $100,000 today, you will owe just under $109,000 in 12 months, based on an interest rate of 8% for the third quarter of 2024. The balance will continue to grow until you contact the IRS and make payment arrangements. Note that the IRS updates the interest rate every quarter. It is three points plus the fed rate. It is higher for corporations that have underpaid by a certain amount.
Federal Tax Lien
The IRS files a federal tax lien anytime someone owes the IRS more than $10,000. The agency doesn’t need to notify you until after it files the lien; generally, the process happens automatically. A lien is the IRS’s legal claim to your assets. If you sell or borrow against an asset while a lien is in place, the IRS can take the proceeds.
Tax Levy
A tax levy becomes a significant threat when you owe this volume of tax debt. The IRS has the right to garnish your wages, take the funds in your bank accounts, and seize assets, including your home. However, the agency must send you a Final Notice and Intent to Levy at least 30 days before the levy. This notice outlines your options and your right to appeal. To stop the levy, you need to take action by the deadline.
Loss of Passport
If you owe the IRS over $100,000, the agency can certify your tax debt to the State Department. Then, the State Department can revoke your existing passport and refuse to issue you a new one. The IRS only certifies seriously delinquent tax debt. As of the end of 2023, that is $62,000 or more in tax debt, interest, and penalties, but the number increases annually with inflation.
Usually, if you make a payment to get your taxes owed under the seriously delinquent threshold, you should be able to get your passport back.
Loss of Tax Refunds and Government Vendor Payments
Generally, if you owe any amount to the IRS, the agency will take your federal and state tax refunds. There are exceptions — for instance, during COVID, the IRS stopped seizing refunds, and if you’re experiencing financial hardship, you can request to keep some or all of your refund. Additionally, if you’re a government contractor, the agency can seize 100% of your vendor payments up to the amount of your tax debt plus interest and penalties.
Assignment to Revenue Officer
When you owe over $100,000, the IRS will usually assign your account to a revenue officer. Most IRS collection processes are automated, and your account can bounce around the automated system for years.
In contrast, if a revenue officer is assigned to your case, they become personally focused on collecting your tax debt. When they go to work every day, collecting your tax bill is at the top of their to-do list. They may visit your home or place of business, and they may subpoena documents, obtain search warrants to find assets, and seize your assets. Note that you can always request a managerial review if you disagree with an IRS employee’s actions.
One question that comes up at this level of debt is, “Can you go to jail for not paying taxes?” The IRS rarely pursues criminal charges unless someone engages in tax evasion or tax fraud. If you’re simply behind on your taxes and struggling to get caught up, this isn’t a major concern.
What to Do If You Owe the IRS Over $100,000
If you owe taxes, there are ways to avoid the above consequences, but only if you take action as soon as possible. Once the IRS levies assets or garnishes wages, it’s hard to get those actions reversed. Here are the main resolution options if you owe over $100,000.
Tax Debt Balance Reduction
There are a few different ways that you may be able to reduce your IRS bill. Consider the following:
- Apply for penalty abatement — Most IRS penalties are based on the balance that you owe, and that means penalties are very steep if you owe over $100,000. Applying for first-time or reasonable cause abatement can significantly reduce your balance.
- Dispute the tax liability — There are many different avenues to dispute a tax liability, including innocent spouse relief, offer in compromise based on doubt as to liability, and requesting a refund after paying under protest.
- Consider a settlement — The IRS settles taxes for less than you owe through offers in compromise or partial payment installment agreements. There is more info on these options below. Approval is based on your ability to pay the taxes owed.
Monthly Payment Plan
If you can afford to pay off your back taxes in monthly installments over the next six years, the IRS will generally let you set up an installment agreement. If you owe $50,000 or less and set up direct debits or a payroll deduction agreement, you can set up a payment plan online.
However, if you owe the IRS 100K or more, you can’t apply online.
You must file Form 9465 (Installment Agreement Request) and Form 433-F (Collection Information Statement). The first form is the standard installment agreement application, and the second form requests detailed info about your finances. The IRS wants to be sure that you’re paying as much as you can afford to pay, and the agency may deny your application if the revenue officer believes that you can pay in full. You can fill out these forms and mail them to the IRS, or you can call the IRS with the info from these forms. In some cases, you can go to an IRS office in person to request payments.
Generally, you can set up a payment plan without making a financial disclosure if you owe $50,000 or less. When you owe this level of back taxes, the IRS will generally accept any monthly payment as long as you can pay off the balance in six years and you’re compliant with filing and payment obligations for other tax periods. If you can afford to make a payment to get your balance under $50,000, you may want to do that before requesting a payment plan.
However, if you have defaulted on a payment plan in the last couple of years, the IRS may require a financial disclosure even if you owe under $50,000.
Note that if you set up an installment plan, you don’t have to worry about levies against your assets, and the failure to pay penalty will drop to 0.25% per month. However, the IRS may still issue a federal tax lien and take your tax refunds. Before setting up a payment plan, you may want to consult with a tax attorney. Unfortunately, IRS payment plans have high default rates, and if you default, the IRS can move forward with collection actions.
We can help you figure out if this is the best option for your budget, and if applicable, we can help you explore other resolution options.
Offer in Compromise
An offer in compromise is when the IRS lets you pay off your tax bill for less than you owe. To qualify, you must prove one of the following 1) you can only afford to pay part of the balance, 2) you don’t really owe the full balance, or 3) it would be inequitable (unfair) to force you to pay the full balance.
Each of these options has a slightly different application process, and the most popular option is to prove that you can’t afford to pay the full balance. The IRS takes into account all of your assets and your disposable income, and if you’re accepted, you must pay the offer in a lump sum or in payments over a 24-month period.
Partial Payment Installment Agreement
With a partial payment installment agreement (PPIA), you make monthly payments until your tax debt expires on the collection statute expiration date. Then, the IRS waives the remaining balance. This can be a great way to get a settlement on your taxes owed, and it’s especially useful for people who cannot qualify for an offer in compromise due to having too much equity in their homes.
However, when you set up a PPIA, the IRS checks your financial situation every two years or so. If your finances improve, the IRS can demand full payment. To ensure this is the best option for you, consult with a tax attorney.
Currently Not Collectible
If you cannot afford to pay, you can get the IRS to mark your account as currently not collectible. Regardless of how much you owe the IRS, this status stops the agency from pursuing collection actions against you. The IRS may still issue a federal tax lien, but it won’t levy your assets or garnish your wages. However, the agency can review your situation and demand payment if your finances improve.
Bankruptcy
Filing bankruptcy may be able to help you with tax debt, but consult with a bankruptcy attorney to be sure. Usually, you can only discharge taxes in bankruptcy if they are income taxes that were assessed at least three years ago, but this can vary. However, when you file bankruptcy, the courts issue a stay that temporarily stops all creditors (including the IRS) from taking collection actions against you.
What is the Difference Between Owing $50,000 and $100,000?
What happens if you owe the IRS more than $50,000? While both numbers represent a sizable amount of tax debt, there are some key similarities and differences that may affect how you approach what you owe. In both cases, you should expect to submit Form 433-F if you want to set up an installment agreement without using direct debit payments.
However, at the $50,000 level, you can use the Online Payment Application to request a long-term installment agreement. If you owe $100,000 and want a long-term payment plan, you cannot apply online. Finally, if you owe $50,000, you are not yet at risk of losing your passport; at $100,000 of tax debt, you could lose your passport at any time.
Get Help With $100,000 in Back Taxes
When you owe more than $50,000 or $100,000 in taxes, the IRS will become very serious about collecting the outstanding balance. The agency can use all kinds of aggressive strategies to collect back taxes, and if you don’t take action, you may face liens, levies, asset seizures, and other consequences.
At Damiens Law, we understand how stressful, scary, and frustrating it can be to be in this situation, and we can help you find a way out. When you contact us, we’ll talk with you about your tax situation and help you find a solution customized to your unique needs. Don’t wait — contact us and get relief today.
