Settling Unpaid Tax Debt

In the current economic climate, unpaid tax debt is another financial burden facing many Americans.  Although tax debt is a form of unsecured debt, federal and state governments have many collection tools, including some options that may not be available to other creditors seeking to collect on unsecured debts.

Potential Penalties for Failure to Pay Back Taxes

There are a variety of potential penalties for taxpayers who fail to pay their taxes as they become due.  Any unpaid federal tax debts are subject to very costly penalties and interest charges.  Even if you have filed an extension request to file your taxes with the Internal Revenue Service (IRS), this is not an extension to pay any taxes that are due, and penalties and interest will accrue.  Furthermore, the collection process for unpaid taxes can include a number of adverse actions against you.  The IRS can assess the tax that you owe, whether you have filed a tax return or not, and then levy your wages or bank account for the money owed.  Furthermore, the IRS can place a federal tax lien on any property that you own, which will make it very difficult to sell or otherwise transfer any property subject to the lien.

How to Deal with the IRS

Rather than ignoring the situation, or simply failing to file your income tax return at all, you should confront your unpaid tax debt by contacting the IRS right away.  If you don’t file your tax return at all, you risk even higher penalties and interest being assessed on your tax debt.  Next, you should consider all of your options in dealing with your unpaid tax debt, and try to work with the IRS to reach a mutually acceptable resolution of your situation.  While the IRS can refer certain cases involving unpaid tax for criminal prosecution, the primary goal of the IRS is to work with tax payers to collect the debt that is owed, not to put people in jail.  Therefore, it is important to regularly communicate with the IRS until you can resolve your unpaid tax debt. 

Options for Settling Unpaid Tax Debt

There are some options available to taxpayers who are unable to pay their tax debts when they become due.  First, you should consider alternative sources of payment, such as taking out a personal loan, tapping into any available home equity, and/or borrowing the money from a family member.  Next, you can ask the IRS to enter into an installment plan, which allows taxpayers to pay toward their tax debts over a certain period of time.  Finally, you can approach the IRS about an offer in compromise, which permits you to pay a lump sum toward the unpaid tax debt by a certain date, in exchange for the IRS forgiving the remainder of your unpaid tax debt.

Legal Assistance with Unpaid Tax Debt

If you owe unpaid tax debt, and you have been unable to resolve the situation with the IRS on your own, you should consult a knowledgeable tax attorney for assistance with your situation.  An attorney may be able to further negotiate with the IRS on your behalf, and/or present other options to you in order to resolve your situation.