Help! I Owe $50,000 to $100,000 in Taxes: Resolution Options

Owing tens of thousands of dollars in taxes can feel very stressful and scary. The good news is – you can resolve this problem. The IRS has many different payment plans and relief options to help individual and business taxpayers who’ve gotten behind on their tax obligations.

However, if you don’t act promptly, you risk facing growing interest and penalties as well as unwanted collection actions such as wage garnishments, asset seizure, and loss of your passport. To point you in the right direction, this post explains the main resolution options for people who owe $50,000 to $100,000, and then, it looks at what can happen if you don’t pay your tax liability.

IRS Resolution Options for Taxpayers Owing $50,000 to $100,000

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The IRS has multiple options for people who owe over $50,000 in tax debt. Depending on your financial situation and history of compliance, you may be able to set up monthly payments, apply for a settlement, or get penalty abatement. Here is a detailed overlook of the resolution options for IRS back taxes.

Installment Agreement

When you owe over $50,000, you may be able to qualify for an IRS monthly payment plan, but you cannot apply online and you must provide extensive financial details. To apply, you can file Form 9465 (Installment Agreement Request) through the mail, or you can call the IRS and verbally give them the information on the form.

You will also need to complete a collection information statement that gathers info on your income, assets, expenses, and debts. Generally, the IRS accepts Form 433-F, but if you’re working with a Revenue Officer, they may require Form 433-A for individuals and/or Form 433-B for businesses. These forms are very similar, but the 433-F is slightly shorter and easier to complete.

What if I can’t afford the minimum payment on an installment agreement?

If you cannot afford the minimum monthly payments, the IRS may agree to give you until the collection statute expiration date (usually 10 years after the tax debt assessment). If the CSED is more than six years away, that spreads out your debt over a longer time period, giving you more time to pay the total balance due.

However, if the CSED is only a few years away, the IRS may suggest a partial payment installment agreement (PPIA). With a PPIA, you make the largest monthly payments you can afford based on your budget, and when the collection statute expires, the IRS waives the remaining debt.

To calculate the minimum payment for an installment agreement, the IRS divides your balance due by 72. For example, if you owe $72,000, the IRS will expect you to make monthly payments of at least $1,000 per month, and ideally, you should pay slightly more to cover interest and penalties. If you already know that you cannot afford a traditional installment agreement, you should contact a tax pro to talk about your options.

Can I set up payments on business taxes?

Yes, the IRS often allows taxpayers to set up installment agreements on business taxes, but the rules are stricter than for individual taxpayers. If your business is still in operation and owes more than $25,000, you will need to complete a collection information statement when you apply for a payment plan.

If you’re a sole proprietorship that is no longer in operation, you can get a payment plan on up to $50,000 in tax debt without making a financial disclosure. If you owe over $50,000, you will need to make a financial disclosure, as discussed above.

Offer in Compromise

An offer in compromise is when the IRS settles a taxpayer’s debt for less than they owe. You may hear this program referred to as “settling for pennies on the dollar”. Note that while that can be possible, it is not the norm, and you usually only qualify for that low of a settlement if you have very limited assets and no disposable income.

That said, if you are struggling financially, an offer in compromise can help you deal with high levels of IRS debt. To apply, you must complete Form 656 Booklet (Offer in Compromise). This packet contains everything you need to apply for an offer in compromise, including collection information statements and the form you use to make the offer.

When you apply for an offer in compromise, you provide the IRS with detailed information about your income, assets, and expenses, and then, the IRS uses these numbers to calculate your offer. Generally, the agency wants your offer to reflect the available equity in your assets and all of your disposable income. If the IRS believes that you could sell an asset, cash out an investment, or cut down on unnecessary expenses to pay your tax bill, the agency will reject your offer.

What are the requirements for an offer in compromise?

If the IRS approves your request for an offer in compromise, you must pay the settlement in a lump sum within five months, or you can take up to 24 months to make payments. The offer will be higher if you opt for up to 24 installments.

Once approved, you must stay compliant with tax filing and payment requirements. If you miss a filing deadline or payment due date over the next five years, the IRS can rescind your offer.

Can you settle IRS tax debt for pennies on the dollar?

Offer in compromise settlements vary based on your income and assets. However, in some cases, it is possible to settle for significantly less than you owe, even if you owe over $100,000. For example, in 2024, 20/20 Tax Resolution helped a Texas-based client to settle $391,000 in back taxes for only $1,308. In 2022, we helped a client who owed $165,073 settle for just $401. Check out more of our offer in compromise success stories.

Penalty Abatement

On its own, penalty abatement will not help you resolve this level of tax debt, but it can help you significantly reduce how much you owe. The IRS offers abatement on late filing and late payment penalties, and generally, you qualify if you establish that this was a first time offense (first-time abatement) or you had very serious circumstances that prevented you from paying (reasonable cause).

Late payment and late filing penalties can each get up to 25% of your balance, bringing the total to 50%. If you owe $50,000, these penalties can increase the balance to $75,000. They can inflate a $100,000 tax debt to $150,000. Interest also accrues on penalties, growing your balance due even faster.

To apply for penalty abatement, contact the IRS over the phone, file Form 843 (Claim for Refund and Request for Abatement), or work with a tax professional. Usually, you want to set up a payment plan before you apply for abatement so that you can minimize unnecessary penalties hitting your account. However, in cases, where penalty removal is likely to get your balance under $50,000, you may want to apply for abatement first, and then, apply for a streamlined installment agreement. That way, you can avoid the extra paperwork.

Currently-Not-Collectible Status

What if you cannot pay anything right now? You have no disposable income and no assets to liquidate? Then, the IRS may be willing to mark your account as currently not collectible (CNC). Also called Status 53, CNC means that the IRS will stop most collection actions against you. You don’t have to worry about wage garnishments or asset levies, but you may still receive notices about how much you owe and there will be a federal tax lien issued against you.

To qualify, you must provide the IRS with a collection information statement that proves you cannot afford to pay. However, in some cases, you may be able to qualify with less info – in particular, if you have a terminal illness, are in a combat zone, or your only income is Social Security or unemployment.

When you’re on CNC status, the IRS monitors your tax returns, and if you file a return that shows income over a certain level, the IRS will expect you to start paying your tax debt. If you maintain CNC status until the debt expires, you will not have to pay it.

State Relief Options

Is some of your tax debt due to state taxes? Do you owe $50,000, $100,000, or more in state taxes? Then, you need to work with a tax resolution specialist who has experience dealing with state tax issues as well as IRS taxes.

Although a lot of states offer similar programs as the IRS, every state has its own unique collection processes and resolution options. Depending on where you live, the type of taxes you owe, and your history of compliance with state regulations, you may be able to set up a payment plan, apply for a statement tax settlement, or explore other options.

Consequences of Owing $50,000 to $100,000

As you can see, the IRS has a lot of options, but what if you ignore your tax debt? In this case, you will receive multiple demands for payment which will get more and more aggressive over time. Eventually, if you don’t pay your tax bill, the IRS will take matters into its own hands and attempt to collect the tax involuntarily.

When you owe this level of tax debt, the agency usually ramps up its collection efforts and often assigns a revenue officer to your account. Here’s an overview of what to expect.

Loss of Tax Refunds

When you owe back taxes, the IRS will seize any tax refunds you earn and apply them to your bill. The IRS can also seize state refunds for unpaid taxes, and vice versa—the state can claim your IRS refunds if you have unpaid state taxes.

If you set up a payment plan, the IRS will seize your tax refunds until your tax debt is paid in full. However, if you set up an offer in compromise, you generally only lose your refund during the year of application, and even then, you may be able to claim a hardship exemption that lets you keep some of the refund.

Federal Tax Lien

A federal tax lien is the IRS’s legal claim to your assets. It is a public record in every county where you own property, and it secures the IRS’s interest in your assets. If you sell your assets, the IRS is in line for the proceeds.

To give you an example, imagine the IRS has a federal tax lien against you for $75,000, and you sell your home for $350,000. You owe $250,000 to the mortgage company. After that, the IRS claims $75,000, and you only have $25,000 left.

Here’s another example, say that you own an RV free and clear with no loan. You sell it for $10,000. Based on the federal tax lien, the IRS has the right to all of those proceeds. The country clerk will not be able to transfer the title until the lien as been satisfied.

If you transfer an asset, the lien will stay attached. Federal tax liens can even survive after a person has died. For example, if you die while a tax lien is attached to your home, the lien will stay attached to your home when it passes to your heirs. The IRS will have the rights to any proceeds generated by the sale of the home or from a loan taken against the home, up to the value of the tax debt plus lien filing costs.

Loss of Passport

When you owe seriously delinquent tax debt, the IRS can notify the State Department to revoke or refuse to issue/renew your passport. As of 2024, this happens when you owe $62,000. The number increases annually based on inflation.

If you make a timely payment, you can stop the IRS from contacting the State Department. However, once the IRS certifies your debt to the State Department, the IRS will not de-certify your tax debt just because you made a payment to get the debt before the seriously delinquent threshold.

To protect your passport, set up a payment plan or apply for another type of relief as soon as possible. Once the IRS alerts the State Department, you will be able to return to the country, but you will not be able to leave again until you make arrangements to pay the tax debt.

Interest and Penalties

The IRS assesses penalties on all delinquent tax debt. The penalty for filing late is 5% of the tax liability per month, up to 25%. The penalty for paying late is 0.5% to 1% of the tax liability per month, up to 25%. Together, these penalties can quickly get up to 50% of your balance.

Interest accrues on top of the penalties, and it compounds daily, leading to an even higher balance. The IRS interest rate for underpaying tax is the federal short term rate plus three, and it adjusts quarterly. As of Q4, 2024, the rate is 8%.

Say you owe $100,000. For paying two months late, you are likely to incur approximately $2,000 in late payment penalties and about $1,333 in interest. Over time, as interest compounds on top of interest and penalties, these numbers snowball.

Wage Garnishment

If you don’t pay your federal taxes, the IRS can garnish your wages. While most private creditors can take only a percentage of your wages, the IRS can take everything over the exempt amount. The exempt amount is the amount the IRS believes you need to live based on your filing status and number of dependents, and it is not a lot.

As of 2024, the exempt amount for a married couple with two dependents is $753.84 per week. Theoretically, if one spouse’s paycheck covers the exempt amount, the IRS could garnish all of the other spouse’s paycheck. Once a wage garnishment is in place, it is possible to appeal, but that can be a time consuming and difficult process.

Whenever possible, you should set up a payment plan before the IRS garnishes your wages, but if the garnishment is already underway, you should contact a tax professional as soon as possible.

Bank and Asset Levy

The IRS can seize all of the funds in your bank account, up to the value of your tax debt including interest and penalties. If you ignore multiple demands for payment, the agency may send you a Final Notice of Intent to Levy with Your Right to a Hearing. That gives you 30 days to respond, and if you don’t, the IRS may freeze the funds in your bank account.

At that point, you have 21 days to prove that the IRS made a mistake or that having the funds frozen is causing extreme financial hardship. If you don’t prove either, your bank will send the money to the IRS at the end of the 21-day period.

The IRS can also seize investment accounts, most retirement accounts, and real and personal property. The agency also also seize payments due to you or your business from other parties such as rent payments from your tenants, accounts receivables from business clients, and other payments.

In all cases, you will get a 30-day notice before the levy takes place, and you should contact a tax professional about levy relief during this short window.

Getting Help With $50,000, $100,000, and More in Tax Debt

When you owe this level of tax debt, it’s easy to feel hopeless. But unfortunately, ignoring the problem won’t make it go away. It will only make the debt grow and the possible consequences become more severe.

There are options. With the right guidance, you can get your tax debt under control and get back into good standing with the IRS. At 20/20 Tax Resolution, we have the experience to help our clients get clarity on their situations so they can find the best possible resolution for their unique situation.

We don’t believe in one-size-fits-all solutions. Instead, we work closely with our clients and listen to their concerns. We help them get a lasting resolution that works with their long-term goals, preferences, and budgets. To get help now, contact us today. Regardless of how much you owe, let’s talk about your tax problem and help you find the best solution.