Many Texas residents who cannot or fail to pay their taxes become worried that the Internal Revenue Service will levy their bank accounts or immediately start taking similar aggressive action in order to recover delinquent payments. However, it is important to remember the IRS must follow a standardized procedure when dealing with any unpaid taxes. Likewise, the penalties you can face for back payments vary considerably given your personal and financial situation.
The IRS has a 10-year statute of limitations in which to collect a delinquent balance after you fail to pay your taxes. However, this period can be extended if the IRS decides to suspend collections activity while it assesses the possibility of innocent spouse relief or an offer in compromise. Additionally, the only collections effort you will face in the first six months after failing to pay taxes is a series of three letters. If you still have not paid following the period, the IRS begins actively pursuing your debt with levies and similar measures and will also begin to charge interest on your total liability. This penalty may rise to a maximum of 25 percent.
If you still cannot pay off your tax liability after six months, you should either contact the IRS or authorize an attorney to do so on your behalf. In many cases, the IRS is sympathetic to those for whom extenuating circumstances like illness or sudden unemployment made it impossible to pay. The IRS may agree to grant you uncollectible status, in which case all collections will stop for one year. Similarly, you may be able to negotiate an installment plan allowing you to incrementally pay off your tax debt without incurring further penalties. You are immune to property seizure if you have secured an offer in compromise, installment agreement or have been deemed uncollectible.
Source: Fox Business, “Owe Money to Uncle Sam? What the IRS Can and Can’t Do,” Bonnie Lee, Oct. 18, 2012