What Happens If You Owe the IRS More Than $50,000?
If you owe the IRS more than $50,000, the following nine things will happen:
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1. Your tax debt is now “seriously delinquent” and may not be able to renew your passport.
Internal Revenue Code Section §7345 gives the IRS authority to certify “seriously delinquent tax debt” — defined as an assessed tax greater than $50,000 — to the State Department.
This means that the State Department will not issue or renew your passport as long as your tax debt remains “seriously delinquent”; in certain cases, it may even revoke your passport.
Note that this $50,000 amount is indexed for inflation every year, and the 2023 indexed amount is $59,000.
2. You will no longer be eligible for a streamlined installment agreement.
If you owe the IRS more than $50,000, you are no longer eligible for a streamlined installment agreement, which is a type of installment agreement the IRS will enter into with a taxpayer without requiring them to fit financial situation and that will not result in the filing of a notice of federal tax lien (assuming the IRS has not filed one yet).
3. You will likely have to pay the IRS at least $700 per month in a standard installment agreement.
Unless you submit financial information to the IRS proving that such an installment agreement would cause a hardship for you, you will likely have to pay your $50,000 or more in tax debt in a standard installment agreement over 72 months, meaning that your monthly payment will be at least $700 per month.
If you can’t afford to make this kind of monthly payment to the IRS — even after cutting out discretionary expenses — you may be able to negotiate a partial-payment installment agreement with the IRS.
4. The IRS may file a notice of federal tax lien against you.
If you owe the IRS more than $50,000, they will still file a notice of federal tax lien against you even if you enter into an installment agreement with them.
Once this happens, you have to get your debt to the IRS below $25,000 in order to get the notice of federal tax lien withdrawn.
So if you don’t want the general public — especially lenders and others interested in your creditworthiness — aware of your tax debt, consider getting your tax debt below $50,000 and entering into a streamlined installment agreement with the IRS so that you can avoid a notice of federal tax lien filing!
Related: What Happens If You Owe the IRS More Than $25,000?
5. Over $290 of interest is accruing on your IRS account every month.
If you owe the IRS more than $50,000, they will charge you over $290 of interest per month (at current interest rates).
This is because the current IRS interest rate is 7%, compounded daily. Even at simple interest, $50,000 x 7% = $3,500 of annual interest, which translates to more than $290 monthly.
6. At least $250 of penalties are accruing on your IRS account every month.
If you owe the IRS more than $50,000, they will charge you at least $250 of penalties per month, assuming that the tax debt was not due more than 50 months ago.
This is because the IRS charges a failure-to-pay penalty of 0.5% per month of your balance, and $50,000 x 0.5% per month = $250 per month.
Note that if you enter into an installment agreement with the IRS, they may reduce this penalty to 0.25% per month.
7. You will no longer be eligible for an in-business trust fund express installment agreement.
If you owe the IRS more than $50,000 in business taxes, you are no longer eligible for an in-business trust fund express installment agreement to pay these taxes off.
In fact, even if you owe the IRS more than $25,000 in business taxes, you are not eligible for this special kind of installment agreement.
An in-business trust fund express installment agreement is a special kind of installment agreement that the IRS will enter into with businesses without requiring them to submit a financial statement or financial verification to apply.
8. If you owe more than $50,000 in payroll taxes, a revenue officer is more likely to be assigned to your case.
If you owe the IRS more than $50,000 in payroll taxes, the IRS is much more likely to assign a revenue officer to your case than if you owe less.
In fact, back payroll taxes tend to catch revenue officers’ attention once they are delinquent to the tune of more than $25,000!
9. You are probably at greater risk of wage garnishments and bank levies.
Now, this is a bit more speculative — I can’t point to any part of the Internal Revenue Manual to support this — but clearly the IRS views $50,000 of tax debt as a certain threshold for taxpayers.
As stated above:
- $50,000 is the threshold over which taxpayers can no longer qualify for a streamlined installment agreement.
- $50,000 is the threshold over which taxpayers will be hit with a notice of federal tax lien, even if they enter into an installment agreement with the IRS.
So there is clearly some significance to the IRS of the $50,000 figure.
And I believe then that it follows — and my experience as a tax relief CPA bears this out — that as a result of owing the IRS more than $50,000, you are a higher priority to them in terms of collections than someone who owes the IRS a lesser amount of money.
Are you necessarily as high a priority as someone who owes $100,000 or more or $1,000,000 or more? No, not necessarily; but while the IRS may not ever take collection activity against someone who owes, say, $5,000, I believe you are at a greater risk of forced collection activity if you owe more than $50,000.
What Should You Do If You Owe the IRS More Than $50,000?
As daunting as owing the IRS more than $50,000 sounds, you do have options. Here are some of the most common ones we recommend to taxpayers who have found themselves in this situation.
1. Pay your balance to $50,000 or below.
As described throughout this article, the IRS appears to take special notice of — and denies some privileges to — taxpayers who owe them more than $50,000.
Therefore, if you can, consider paying your balance down to $50,000 or below before seeking to enter into a resolution with the IRS on your tax debt.
Tip: Consider requesting penalty abatement from the IRS to lower your balance!
2. Enter into an installment agreement.
If you can’t pay the amount you owe to the IRS immediately, consider applying for an installment agreement with the IRS.
3. Consider your tax relief options.
If paying your balance in full — even over several months or years in an installment agreement — will cause you financial hardship, consider tax relief options such as:
- Offer in Compromise: This is an agreement with the IRS to settle your tax debt for less than you owe.
- Partial-Payment Installment Agreement: This is a special kind of payment plan with the IRS in which you pay them less than you owe over time. Note that in order to be approved for a partial-payment installment agreement, you will need to prove to the IRS on a Collection Information Statement such as Form 433-F that paying your liability in full before its collection statute expiration date will result in financial hardship. Also keep in mind that the IRS will generally file a notice of federal tax lien against you if you are approved for a partial-payment installment agreement — regardless of how much you owe. Also, partial-payment installment agreements are subject to review every two years.
- Currently Not Collectible (CNC) Status: This is a special hardship status with the IRS in which you do not have to pay anything to the IRS and the IRS cannot take forced collection activity against you. Similar to a partial-payment installment agreement, you have to qualify for this status and should expect the IRS to file a notice of federal tax lien against you if you are placed into CNC status. Note that the IRS can remove you from CNC status if it believes your financial situation has approved.
For more information about your tax relief options, read this article or watch my video below!
Author:
Logan Allec, CPA, Founder and Owner
Logan Allec has been serving taxpayers as a CPA for over 14 years. After leaving his role at a "Big 4" firm, he started Choice Tax Relief to help everyday Americans who have found themselves behind on their taxes. He also educates thousands of people daily about tax relief on his YouTube channel. In addition to his CPA license, Logan also has a Master's Degree in Taxation from the University of Southern California (USC). He lives with his wife and children in the Los Angeles area. Learn more about Logan here.
