What Are The Consequences of Not Paying Back Taxes?

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Dealing with unpaid taxes is more than an inconvenience – it can substantially impact your financial health and peace of mind. At DiLucci CPA Firm, we understand the stress and uncertainty of tax issues. We’ve been working with Texans since 2005, ensuring that our family firm addresses your concerns professionally and personally. Now, let’s talk about what happens if you don’t pay back taxes and why it’s a matter that requires prompt attention.

 

Immediate Impacts on Your Wallet

The first consequence of not paying back taxes is the accumulation of penalties and interest. These can multiply, making the original amount owed significantly larger. The IRS will typically send notices and demands for payment, which should not be ignored. At DiLucci CPA Firm, we have seen how quickly these penalties can escalate and the importance of addressing them promptly.

 

Long-Term Financial Repercussions

Ignoring back taxes can lead to a domino effect of financial woes. If left unresolved, you could look at a lien on your property, a public record that tells the world you owe the government money. This impacts your credit score and can make it challenging to sell your property or obtain financing. A tax lien is the government’s way of staking a claim on your assets, and it’s not a position anyone wants to find themselves in.

 

Potential Legal Consequences

Failing to pay back taxes can lead to a series of legal consequences that can significantly impact an individual’s or a business’s financial health and legal standing. Here’s a detailed breakdown of what could happen if back taxes aren’t addressed promptly:

  • Penalties and Interest Charges: The first and most immediate consequence of not paying back taxes is the accrual of penalties and interest. The IRS imposes a failure-to-pay penalty, which can grow up to 25% of your unpaid taxes. Additionally, interest on the overdue amount accrues daily from the due date of the tax until it is paid in full.
  • Tax Liens: A tax lien is the government’s legal claim against your property when you neglect or fail to pay a tax debt. If you have unpaid back taxes, the IRS may file a Notice of Federal Tax Lien, alerting creditors that the government has a legal right to your property. This lien applies to all your assets (such as property, securities, and vehicles) and future assets acquired during the duration of the lien. 
  • Tax Levies: A more severe step than a lien is a levy. If the back taxes remain unpaid, the IRS can seize property and assets to satisfy the debt. This can include taking money from your bank account, garnishing your wages, or seizing and selling your vehicle, real estate, and other personal property.
  • Impact on Credit Score: Once filed, a federal tax lien can significantly harm your credit score, making it difficult to obtain credit or loans in the future. It can stay on your credit report for up to seven years, even after the debt is paid. 
  • Revocation or Denial of Passport: The IRS can certify serious tax debts to the State Department, which can deny, revoke, or limit your ability to use your passport. This can particularly impact individuals who travel internationally for business or personal reasons.
  • Legal Proceedings and Criminal Charges: In extreme cases, failure to pay taxes or deliberate tax evasion can lead to criminal charges. Tax evasion can carry severe penalties, including fines of up to $250,000 for individuals and $500,000 for corporations, and imprisonment for up to five years. While criminal charges for unpaid taxes are rare, they are serious and represent the most severe consequence of failing to pay taxes.
  • Business Implications: Unpaid taxes can lead to additional complications for business owners. The IRS can levy business assets, leading to a disruption in business operations. If the business holds federal contracts, unpaid taxes could lead to disqualification or termination of these contracts. Furthermore, companies with due payroll taxes may face the Trust Fund Recovery Penalty (TFRP), which holds business owners, officers, or responsible parties personally liable for unpaid employee tax withholdings.
  •  Professional Repercussions: Certain professions may require disclosure of tax status. Unpaid taxes affect professional licenses and security clearances and could damage professional reputations.

 

Reach Out Before It’s Too Late

Don’t let the weight of unpaid back taxes keep you up at night. We at DiLucci CPA Firm are here to lend an understanding ear and a helping hand. Our family firm, with our long-standing commitment to our clients, is ready to help you tackle your tax, accounting, or IRS matters with the attention and dedication you deserve.

To speak with a team member, call us at (972) 444-9934, or contact us online to schedule a consultation. Together, we can address your tax concerns and strive for a future free from the stress of IRS troubles.