Tax evasion is a major issue in the United States today. In fact, about 1 out of 6 dollars owed in federal taxes isn’t paid[1]. Furthermore, the amount of unpaid taxes each year is around three-quarters the size of the entire annual federal budget deficit. Both individual taxpayers and business owners commit this crime.
Are you willing to risk the consequences of not reporting or paying the IRS every year? If so, read through this article to see some of the consequences you could face for tax debt.
1. With a tax debt, you’ll get more IRS notices.
The first consequence you’ll face is an increase in IRS notices as they push for payment. IRS notices will include notices of your tax debt balance, information on enforcement of tax debt collection, and any fees or penalties that have been added. These notices may seem annoying and you might be tempted to just ignore them. That’s a big tax mistake so don’t. If you continue to ignore these notices, you’ll face more consequences down the road.
2. You’ll be put in an automated collection.
When you don’t respond to the IRS notices, you’ll be added to the IRS Automated Collection System (ACS). The ACS is the system that the IRS uses to collect back taxes. This system can issue liens, as well as levy bank accounts and wages as part of the consequences of your tax debt. Moreover, if you still don’t comply by the deadline, the notices you’ll receive from the ACS will start to explain more serious consequences.
3. Interest on your tax debt will accrue on your tax amount due balance.
In addition to your tax bill, the IRS is going to start charging you interest. As the balance grows, so does the interest.
4. You’ll be charged with penalties.
Penalties are another consequence of your tax debt. On top of the interest, the IRS charges a ‘failure to pay penalty’ on your unpaid tax balance. Furthermore, the penalty rate doubles per month if the IRS has sent you several notices to collect and you still don’t pay.
5. The IRS could take your tax refund.
If you end up getting a tax refund, but you still owe back taxes, you may end up not receiving that refund. The IRS can choose to keep that refund to offset your tax debt, even if you’re already in an agreement to pay them.
6. Having a tax debt can get you banned from traveling abroad.
Recently, the IRS has added a new consequence for tax debt. If your tax debt is over $51,000 and the IRS has tried to collect from you before, but you haven’t made any payment arrangements, they may label you as a ‘seriously delinquent’ taxpayer. When this happens, the State Department can restrict your passport, prohibiting you from traveling abroad. If you don’t have a passport, this can prevent you from getting one. On the other hand, if you already have a passport, you won’t be able to renew it until you’re removed from the ‘seriously delinquent’ list.
The Bottom Line
These are just some of the many consequences you may face due to tax debt. If you want to avoid these consequences, act now and deal with any tax obligations as soon as you can. The IRS offers many short- and long-term payment plans that can help reduce interest and penalties.
If you need professional tax and accounting services, Susan Gordon Lee is here to help! We can help you maintain control over your finances so you can avoid any problems with the IRS and stay financially secure for the future.
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