Tax Debt and IRS Policies

Last updated on July 7, 2023

To successfully resolve a tax issue, taxpayers must be aware of some of the basic IRS policies that may impact their debt. When in the process of resolving back taxes, one of the most important factors to consider is penalties and interest.

The IRS charges penalties and interest each month on back taxes owed. After the filing deadline, the IRS considers any unpaid taxes as tax debt. Even if you file a tax return and have paid a portion of what is owed, the IRS will charge penalties and interest on the taxes that remain unpaid. The penalties and interest continue until the taxpayer has paid the entire tax debt, whether s/he has qualified for a payment plan or not.

Along with penalties and interest, the IRS also begins collection actions to recover unpaid taxes. In the beginning, they send notices to inform taxpayers of unpaid taxes, how much they need to pay, and how they can pay. If the notices are ignored and no effort is made to resolve the tax debt, the IRS proceeds toward the placement of a lien and/or a levy in attempt to satisfy the tax debt.

When you have tax debt, it is best to explore options for resolution early so that less penalties and interest incur, and also to avoid potentially damaging collection actions.