What Happens If You Owe the IRS More Than $10,000?

Summary

People who owe the IRS $10,000 or more in unpaid taxes have several options to resolve their tax debt. The IRS offers several programs, such as installment agreements, penalty abatement, and offer-in-compromise, to help taxpayers pay off their balances. If you owe over $50,000 in taxes, you may face additional penalties and enforcement actions, including a higher chance of a wage garnishment, bank levies, asset seizures, and passport revocation. It’s important to seek professional assistance from a tax attorney to determine the best option for your situation and navigate the process effectively.

Background:

A lot of people call our office and say, “I owe 10k in taxes what should I do?” First, it’s important to note that you are definitely not alone. We offer a free consultation and we can provide advice on how to handle the situation. Here are more details:

A lot of people owe $10,000 or more in back taxes, and the IRS has programs available to help you resolve your tax debt. However, it’s also important to note that the IRS takes this level of debt very seriously. You won’t go to jail, but you will face other collection actions such as repeated letters in the mail, and if those are ignored a possible levy on a bank account.

If you want to talk about your tax relief options now, contact us at the Timothy S. Hart Law Group today. We’ll talk with you about your situation and help you find the best way to get out of debt with the IRS. In the meantime, here is an overview of what happens when you have $10,000 or more in unpaid taxes.

What Happens If I Owe $10,000 to the IRS?

If you owe the IRS more than $10,000 in back unpaid taxes, the IRS can issue a tax lien against you. According to IRS Topic No. 201, federal tax liens arise automatically when the IRS sends the first notice demanding payment of your tax liability, and it is neglected or refused to be paid, but in practice, the IRS usually doesn’t issue tax liens if you owe less than $10,000. Furthermore, when the IRS sends the first notice (typically, the CP14 notice) demanding payment of your tax liability, that is the best time to react.

When you owe any amount of tax liabilities to the IRS, the agency will seize your tax refunds and add interest and penalties to your account. Generally, the IRS will send notice CP504 to alert you that it plans to seize your tax refunds. It also has the right to pursue additional collection actions against you, including wage garnishments, bank levies, and asset seizures. Note that the IRS doesn’t have to send a letter warning you about the tax lien, but in most cases, you will receive demands for payment like the CP14, CP501, or CP503, before the lien is filed.

Tax Relief for People Who Owe the IRS Over $10,000

The IRS offers several options for people who can’t pay off their balances in full. If you owe more than $10,000 in unpaid taxes, you can use the following options:

Reduce the tax liability to less than $10,000 and apply for a guaranteed installment agreement

This installment plan is available to people who owe less than $10,000 and can pay off their bill in monthly installments in three to six years or less. To qualify, you must make a payment to get the amount that you owe under $10,000 before you apply.

If your balance is over $10,000 due to penalties, you may be able to get under the threshold by applying for penalty abatement. The IRS generally removes penalties if you have reasonable cause, if you incurred penalties for the first time, or if you are in a federally-declared disaster area. These plans are called “guaranteed” because acceptance is automatic if you meet the requirements. They also remove penalties 

Apply for a short-term installment agreement

If you can pay off the taxes owed in 180 days or less, you can apply for a short-term agreement online, and you don’t have to pay the installment plan application fee. This option is available to taxpayers who owe $100,000 or less. If you owe $100,000 or more, you may be eligible for one of the other options discussed below.

Ask for a hardship extension

If you’re experiencing undue financial hardship, you can apply for a short-term extension which gives you an extra 18 months to pay. In limited situations, the IRS will give you an extra 12 months (30 months total). To apply, use Form 1127 (Application for Extension of Time Due to Undue Hardship). I had a client who had serious medical issues from an accident, and also owed a lot of tax debt. The injuries were going to be compensated in a form of a negligence lawsuit, so we were able to hold off the IRS long enough for the lawsuit proceeds to be available, and the client did not have to live with the daily stress of the unpaid tax issue since the IRS accepted payment when the lawsuit paid out.  

Request a monthly payment plan

You can apply to make monthly payments using the IRS application online or by filing Form 9465 (Installment Agreement Request). You must be able to pay off the balance within 72 months (six years) or by the Collection Statute Expiration Date (CSED).

Note that if you owe over $25,000, you must agree to make your payments through direct debit from your bank account or a payroll deduction agreement, or the IRS will require you to provide additional details about your finances.

Consider an offer in compromise

If you cannot afford to pay your tax liability through any of the installment plans, the IRS may be willing to settle through the offer-in-compromise program. The settlement is based on the equity in your assets plus your income, and it must be paid in a lump sum or in installments over 24 months. It is very difficult to convince the IRS that they should write-off the taxes, so obtain help as needed with the application process. 

See if you qualify for a partial payment installment agreement

This is where you make monthly payments until you reach the collection statute expiration date, and then, the IRS writes off the remainder of your balance. Compared to an offer in compromise, this option can give you more time to pay. For example, say you owe $50,000 and they agree to $300 a month, it may be that you don’t pay the whole balance since there is a 10 year collection statute of limitation that would toll before you paid the tax debt in full. 

However, the downside is that the IRS reviews your financial situation every two years. If your updated financial information indicates that you can afford to pay, the IRS can rescind this offer and demand the balance in full.

Request currently not collectible status

If you can’t afford to pay anything right now and you can prove it by providing financial documentation (Form 433-F), you may need to apply for currently not collectible status. You simply prove to the IRS that you don’t have any money and that you can’t sell assets or take out a personal loan to pay. Then, the IRS stops collection actions until your financial situation improves.

Look at innocent spouse relief (if applicable)

This relief program applies in cases where the tax liability is due to your spouse or ex-spouse’s actions. There are actually three different programs, and they all absolve you from owing your spouse’s taxes. However, there are strict eligibility requirements, and to get approved, you need to ensure you complete the application process correctly.

To find the best option for your situation, contact a tax attorney. They’ll be able to help you figure out the best option for your situation.

What If I Owe More Than $50,000 in Taxes?

If you owe more than $50,000, the IRS will add penalties and interest to your account and issue a federal tax lien against you. When you owe $50,000 or more, the agency becomes much more likely to seize your assets, garnish your wages, and levy your bank accounts.

Additionally, as of 2022, the IRS will not allow the US Dept. of State to renew your passport if you owe more than $55,000 including interest and penalties. Originally, when the IRS first started “taking” passports, it did so for anyone who owed more than $50,000. But this number is indexed to inflation so it goes up every year. The IRS refers to this as seriously delinquent tax debt.

Note that the IRS doesn’t actually take your passport — instead, it sends a letter to the State Department certifying your tax debts. Then, the State Department will refuse to issue or renew your passport, or it will revoke your existing passport. If you’re out of the country when this happens, you will be allowed to get home, but you won’t be able to travel again until you resolve your tax debts.

Options When You Owe More Than $50,000 in Tax Debt

If you owe more than $50,000 in tax debt, you have about the same tax relief options as someone who owes $10,000 in taxes, but if you want to make payments on an installment plan, you can’t apply online and you must provide the IRS with a lot more details about your financial situation.

Here are the resolution options for people who owe more than $50,000 in tax debt:

• Short-term installment plan — As long as you owe less than $100,000 and can pay off the full balance within 180 days, you can set up a short-term installment plan online.
• Installment agreement — Can take up to 72 months to pay through monthly payments. Must apply using Form 9465 (Installment Agreement Request) and Form 433-F (Collection Information).
• Offer in compromise — Use Form 656-B (Offer in Compromise) to apply to settle your debt for less than you owe.
• Partial payment agreement — Contact the IRS directly or work with a tax attorney to request to make monthly payments on a tax settlement.
• Innocent spouse relief — Only applies in situations where the tax debt was incurred by your spouse or former spouse without your knowledge.

If you owe more than $50,000 and want to set up a streamlined installment agreement online, send in a payment to bring your tax debt below the $50,000 threshold. Then, go online to request an installment plan. If you can afford a large upfront payment to get your bill below the $50,000 threshold, this is often the easiest way to set up monthly payments without making a financial disclosure and it also avoids the filing of a federal tax lien. 

Non-Streamlined Installment Agreements for Tax Debt Under $250,000

In 2020, the IRS made a variety of changes to help taxpayers who were suffering financially. Due to these changes, you may be able to set up an installment agreement without submitting a financial statement if your tax bill is $250,000 or less and it hasn’t been assigned to a revenue officer. From experience, the threshold can change over time, so its best to ask.  

This is called a non-streamlined installment agreement (NSIA). Taxpayers lose this option once their case is assigned to a revenue officer. So, it’s important to act quickly if you want to set up payments on a large tax bill without filing a collection information statement.

Note that because this was a COVID-era program, it may be subject to limited availability. To find out if you can still set up a non-streamlined plan, contact the IRS or a tax lawyer.

What If I Owe More Than $10,000 in 2019 Taxes?

Due to the COVID pandemic, the IRS offers special help to people who have 2019 tax debt. If you owe up to $250,000 from tax year 2019, the IRS will let you set up an installment agreement without issuing a tax lien against you.

This only applies to 2019 taxes, and it is part of the IRS’s COVID-related programs that are subject to change. To find out if this option is still available, reach out to a tax expert or contact the IRS directly.

What If My Business Owes More Than $10,000

As long as your business owes $25,000 or less, you can set up a payment plan online or by calling the IRS ACS group. Sole proprietors and independent contractors should apply for installment plans the same way as individuals do.

If you owe more than $25,000, you may only be able to set up a payment plan if you file all your tax returns, are up to date with any tax payments (estimated taxes and payroll tax deposits), and work with an IRS revenue officer to create a payment plan.  

To protect your business, work with an experienced tax professional who can steer you toward the best tax relief options. Tax experts can help you set a plan that works for your budget and allows you to continue operating.

Other Options When You Owe Taxes

If you owe IRS $10,000 or more, you don’t have to use the IRS’s plans. Instead, many taxpayers use the following options to pay off their tax liabilities in full:

• Sell assets — If possible, liquidate assets to pay off your taxes. This is especially wise if the asset is no longer really needed and you can avoid IRS interest charges.  
• Borrow against your assets — You may be able to take out a loan against the equity in your assets. For example, some taxpayers take out home equity loans to catch up on back taxes. In some cases the IRS may actually require this if you have a lot of equity in your home. 
• Use a credit card or take out a personal loan — This option can save you money if the interest rate on the card or loan is lower than the combined interest and penalties assessed by the IRS. Because it often is not, this is usually not a good idea. 
• Take out a loan from your retirement account — Many retirement accounts let you take out loans at affordable rates. This may be a good idea if the loan is affordable. 
• Ask a family member for help — Many taxpayers have family members who are willing to help.
• Find ways to boost your income — Taking on a side gig can help boost your income so you can pay off your taxes, but make sure that you’re aware of any additional tax liability created by the income you earn.
• File bankruptcy — Use this option very cautiously, and always consult an attorney. Tax debt can only be discharged in bankruptcy if it meets very specific criteria. We typically would only recommend this if you also have non-tax debt. 

Paying off your tax bill is just the first step. You should also make plans to avoid getting into tax debt in the future. If you have an employer, ask them to withhold more taxes from your paycheck. If you are self-employed, you may have to budget more carefully so that you can make larger estimated quarterly tax payments. It might seem extreme, but making monthly estimated tax payments is a great idea. 

Note that many payment plans require you to stay current on filing tax returns and paying taxes. If you don’t, you may lose your offer in compromise, or the IRS may put your payment plan into default.

Do You Need Professional Help If You Owe $10,000 or More in Taxes?

If you owe $10,000 in tax, interest, and penalties, you may be able to take care of the issue on your own. If you feel confident about taking a DIY approach, dive right in. Most of the forms you need to apply for various programs are linked on this web page.

However, for best results with any complex tax situations, you should work with a tax pro. They understand the IRS tax relief programs inside and out, and they will be able to help you find the best solution for your situation. A tax professional can be especially helpful if you’re applying for an offer in compromise, a partial payment installment agreement, or innocent spouse programs.

With these tax relief programs, you often have to argue your position, and this requires an in-depth understanding of the extensive tax code. Additionally, tax attorneys know the loopholes — for instance, they know when it’s best to make a payment before you apply for an installment agreement, and they understand how to get liens subordinated so that other creditors will work with you.

You don’t need to work with one of the big tax relief companies. Instead, you should look for a an experienced tax attorney who can provide you with personalized, hands-on help.

Contact Us If You Owe IRS $10,000 in Tax or More

Do you owe the IRS $10,000 or more? Then, you need to get help before the IRS starts issuing tax liens, taking your tax refund, or using other collection actions against you. Our law office is staffed with tax attorneys and other tax professionals who can help you find the best tax relief for any level of IRS debt.

We can also help you if you owe money and the IRS has already started collection actions against you. If you’re experiencing financial hardship due to liens or levies for taxes owed, an experienced tax professional can help you get relief.

We help people with all levels of tax debt. If you owe $9,000, $15,000, $20,000, or even a million in back taxes, we can help you out. Don’t let IRS collections stress you out and harm your finances — contact us for help today. We can help you get relief from your tax burden.