Skip to content

What Happens When You Have a Large Tax Debt You Can’t Pay?

An illustration of large arms shaking money out of a small person’s pockets, representing IRS tax debt

Dealing with tax debt will make any of us sweat, especially when we’re faced with a large sum owed to the IRS. No matter how you got to this point, seeing that number on paper can be staggering—not to mention the interest and penalties that can pile up the longer the debt goes unpaid. If you find yourself in a situation where you can’t pay your tax bill, it’s best to familiarize yourself with the possible consequences and explore options for tax resolution services.

In this post, we’ll look at what happens when you can’t pay a significant tax debt to the IRS and how tax resolution services can help you find a way forward.

Unpaid Tax Debt – Possible Consequences

If you are unable to pay your taxes, ignoring the problem can trigger a cascade of further issues. These consequences can wreak havoc on your life and cause you a lot of undue anguish. Here are four of the possible IRS consequences that may arise:

Accumulation of Interest and Penalties

Unpaid tax debt will accrue interest and penalties over time, significantly increasing the amount owed. Though the underpayment interest rate changes quarterly, it is no laughing matter—as of April 2024, it is set at 8% for individuals, which compounds daily.

Late payment penalties may also apply, typically at a rate of one-half of 1 percent (0.5 percent) per month that the tax debt is late.

IRS Collection Action

The IRS may also take various actions to collect unpaid tax debts. One action includes issuing a Notice of Federal Tax Lien, which lets creditors know the IRS has a legal claim to your property. They may also issue a notice to seize your assets to pay off the debt.

Credit Score Impact

Unpaid tax debt will also negatively impact your credit score. A federal tax lien will appear on your credit report, making it difficult to qualify for loans, credit cards, or other forms of credit.

Legal Action

In severe cases where tax debt remains unpaid, the IRS may pursue legal action, including filing a lawsuit against you in federal court. This can result in wage garnishment, bank levies, or other enforcement actions.

Unpaid Tax Debt – Tax Resolution Solutions

If you have a large tax debt that you cannot pay in full, don’t fret—instead, take action! There are plenty of options to help you resolve your debt, no matter how overwhelming it may feel. Tax resolution services specialize in helping individuals and businesses navigate complex tax issues and negotiate with the IRS on their behalf.

Here are some tax resolution options to consider:

  • Installment agreement: An installment agreement allows you to pay off your tax debt over a period of time, usually in monthly installments.
  • Offer in Compromise: An offer in compromise is an agreement between you and the IRS to settle your tax debt at an amount you can afford, usually much less than the full amount owed.
  • Currently Not Collectible Status: If you are experiencing financial hardship and can’t pay your tax debt, you may qualify for “currently not collectible status” (CNC) with the IRS. This solution temporarily suspends IRS collection activities until your financial situation improves.
  • Tax Penalty Abatement: In certain situations, the IRS may waive or reduce penalties associated with unpaid tax debt. This is known as a tax penalty abatement and requires help from a professional to advocate on your behalf and minimize the amount owed.

Put Your Tax Debt Behind You With Lothamer Tax Resolution Services

The deeply qualified and experienced team at Lothamer Tax Resolution can help you set up a payment plan or another solution with the IRS based on your financial situation and free you from your tax debt. We will advocate on your behalf to ensure you can stay on your feet and protect your most valuable assets.

Find tax resolution relief in Michigan, Indiana, Illinois, and Wisconsin at Lothamer Tax Resolution. We understand people’s many reasons for not filing their tax returns on time or getting into an overwhelming tax situation. Some don’t know whether or how to report certain income, and others have missing records, divorce, the death of a spouse, or other unexpected life events that have set them back financially. We’ve seen it all and can help you find a resolution to get you back on track.

H3: Large Tax Debt Relief at Lothamer Tax Resolution in Michigan, Indiana, Illinois, and Wisconsin

Large tax debts may seem impossible to resolve on your own, but with the help of one of our Enrolled Agents, tax attorneys, or CPAs, you can get the assistance you need. At Lothamer Tax Resolution, we pursue the best strategy for your immediate situation. Find an office of Lothamer Tax Resolution near you, or call or text (877) 955-9020 to speak to a tax expert TODAY!

"*" indicates required fields


Back To Top