What to Do and What to Expect with Unpaid Back Taxes

Facts About Unpaid Taxes

Having unpaid back taxes and not being able to pay is a very common thing to the IRS. In an average year, 19% of the people in the United States have back taxes. Since this is such a common problem, you can be assured there are many solutions. The IRS will work with you so it can ensure that it gets paid. Typically the IRS will try to collect the maximum amount of taxes owed from you with the least amount of effort, this is a good thing to keep in mind if you intend on settling your back taxes for less than the actual amount owed. The earlier you acknowledge the problem with back taxes and take action, the easier it will be to settle them with the IRS. If back taxes go unpaid you can be assured that the IRS will find you and will eventually take action. The IRS has a very automated process that it goes through routinely in order to make people pay. See below to see a very brief description of the events you can expect to happen if action is not taken to resolve unpaid back taxes.

When you Can't Pay Taxes Owed
When you have unpaid tax and you cannot pay, you are still expected to pay the IRS. For those individuals that cannot pay in full, the IRS offers many other methods of payment. These methods range from making monthly payments toward the tax amount owed to paying only a fracton of what is actually owed and calling it even. Depending on your financial situation, the IRS will always be willing to work with you.

IRS Actions For UnPaid Back Taxes

1. Receive Assessment Letter and CP Notices (Computer Paragraph Notices, or 500 Series Notices)
   Once the IRS determines that you have back taxes, it enters you into the automated computerized notice cycle. The first letter you will receive is an assessment letter which will state the amount of taxes you owe. This letter will then be followed by a series of CP notices. There are four of these letters you will receive from the IRS. These letters are a series of automated messages that the IRS sends to anyone who has unpaid back taxes. If you do not respond to these letter the IRS will begin taking collection actions against you. The letters start with CP-501 and go through CP-504. CP-501 starts off as an undemanding letter and goes to CP-504 which is very threatening and mentions their intent to levy.
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2. Receive Notice of Federal Tax Lien (NFTL, IRS Form 668)
   Once you receive this notice the IRS will have already encumbered your property. A tax lien can greatly affect your life. The purpose of it is to prevent you from selling or borrowing against any of your major assets.
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3. Receive a Tax Levy
   A tax levy is the actual seizing of assets that you own. This can be just about any asset that you own with a few exceptions. The IRS will continue to seize your assets until your tax liability is completely paid off or until have arranged another agreement with them. Depending on what they are seizing, a levy can be called many different names. The following are different types of tax levies:
   
   • Wage Garnishment - Levy on wages paid
   • Bank Account Levy - Levy on your bank account
   • Property Seizure - Seizure of your physical assets
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That is the typical process that the IRS takes against all individuals with unpaid back taxes. The sooner action is taken, the less money you will likely end up paying. See the column on the right for the different solutions for dealing with unpaid back taxes if you cannot pay taxes in full.

Tax Professional
A tax professional can analyze your situation and determine what method of settlement would be best for you.

When You Can't Pay Taxes When they are Due
Tax day is coming up, you were unable to set aside enough money to pay taxes, now what?

Offer In Compromise
Settle IRS back taxes for a fraction of what is owed if you can prove you meet strict IRS specifications.

IRS Payment Plans
Setting up a payment plan with the IRS can sometimes be the easiest solution to dealing with back taxes. See what payment plan fits your situation the best.

IRS Penalty Abatement
Eliminate penalties and interest if you have legitimate reason for falling behind and not paying back taxes owed on time.

Currently Not Collectible
Prove to the IRS that you do not have the means to pay your back taxes with your current financial standing. Hold of IRS until you can pay or until statute of limitations expires.

Delay IRS Collections
If you just need more time to pay and want to delay the IRS collection system you can easily get extensions.