Simply put, delinquent taxes mean taxes you haven’t paid after the payment deadline has passed. They attract additional penalties and interest, which will continue to accrue as long as they remain unpaid. In 2024, the IRS assessed $17.8 billion in additional taxes for late returns and brought in close to $3.2 billion with delinquent returns. If any of your taxes have become delinquent, tax experts like BC Tax can help you understand your options and walk you through the process.

Different types of taxes, including income, sales and property taxes, can become delinquent. This guide will help you understand your peculiar situation and the potential solutions you can explore to remedy it.

Common Causes of Delinquent Taxes

To have delinquent tax means you owe the IRS, and there can be several causes for this, including:

  • Failure to file required tax returns: Your taxes automatically become delinquent when you fail to file tax returns before the due date. You may forget to file your taxes or not have the funds to pay. Whichever is the case, missing a deadline exposes you to the consequences.
  • Failure to respond to an IRS notice outlining an unpaid tax balance: The IRS will typically notify you when you file a tax return and fail to pay it in full. In such a case, failing to respond to such a notification can result in delinquent taxes.
  • Underreporting income: Underreporting your income can lead to delinquent taxes.
  • Uncertainty about tax obligations: You may miss payment deadlines because you’re unsure about your tax obligations.
  • Additional taxes: A tax audit may disclose additional taxes you owe the IRS. If you can’t pay them, they become delinquent.

Notices of Delinquent Taxes

The first step the IRS takes when you fail to pay taxes as due is to send letters and collection notices to outline and explain your unpaid taxes. Some notices you can expect to receive include:

  • IRS notice CP14: This initial balance due notice outlines the exact amount of your delinquent taxes and the penalties and interest accrued since the tax due date. It may also include a demand from the IRS to pay your unpaid balance by a specified date.
  • Reminder notices: If you fail to act on the CP14 notice, you will receive reminder follow-up notices in the form of CP501, CP503 and CP504 notices, among others. The CP504, a final warning notice, outlines the IRS’s intention to levy your income and bank accounts. Additionally, the IRS can seize your property or your rights to it to fulfill your unpaid taxes.
  • LT11 notice or Letter 1058: Failure to pay your delinquent taxes after receiving a CP504 notice will result in the IRS sending a final notice. You’ll receive Letter 1058 or an LT11 notice restating the IRS’s intention to levy. The letter will also contain a 30-day notice highlighting your right to a hearing. At this stage, you must act urgently. If you’re unsure what steps to take, reach out to experts like BC Tax to guide you.

Consequences of Delinquent Taxes

Irrespective of the cause of your tax delinquency, you may be liable to one or more penalties that the IRS can impose. In addition to interests that accrue daily on delinquent taxes, you may face the following:

  • An IRS levy: The IRS can impose a levy on you for failing to pay delinquent taxes. This levy comes after a final LT11 notice is issued, allowing the legal seizure and sale of your property to fulfil the obligation. Property may include real estate, vehicles and other personal property. The IRS can also seize portions of your wages or take money from your accounts.
  • A federal tax lien: This tax lien gives the IRS the right to keep your property until you repay any unpaid taxes. Additionally, the IRS notifies potential creditors of such a tax lien, negatively impacting your eligibility for financing.
  • Passport revocation or denial: In extreme cases of seriously delinquent tax debt, including penalties and interest, the IRS can revoke your passport or deny your application for one.

What to Do When You Receive an IRS Notice

Finding an IRS notice in your mailbox can be daunting and overwhelming. However, it’s not the end of the world. How you respond to the notices you receive can make a big difference. Some steps you can take when you receive an IRS notice include:

  • Carefully examine the details of the letter: You must take the time to read every notice or letter you receive from the IRS after any tax becomes delinquent. Take note of the amount owed and any dates specified for repayment. This step gives you a well-informed idea of your tax delinquency.
  • Review for accuracy: The IRS may wrongly assess delinquent taxes. Cross-check details in the IRS notices against your records. If you find any inaccuracies, you can file an IRS appeal to prevent unfair collections.
  • Seek professional help: Explore all your options to resolve delinquent taxes. The tax experts at BC Tax can help with resolution options, including appeals.

Solutions for Delinquent Taxes

While delinquent taxes come with several consequences, they are not without remedy. You can explore a few solutions to get back on track. Let’s examine some options for resolving tax delinquency.

Payment Arrangements

A notice of delinquent taxes typically specifies the date the IRS expects you to pay. However, if you can’t fully satisfy your tax debt within that time, you may qualify for a short-term payment plan to pay in full. Under this plan, the IRS can give you extra time for up to 180 days. You may be eligible for a short-term payment plan if your delinquent taxes, penalties and interest combined are less than $100,000.

If you cannot pay your tax debt in full within 180 days, you may be eligible for a long-term monthly payment plan. This plan includes an installment agreement allowing you to pay your delinquent taxes monthly over an extended period. To qualify for an installment agreement as an individual, your tax debt, penalties and interest combined must be $50,000 or less. Businesses can qualify if they have complied with their tax return obligations and owe $25,000 or less in taxes, penalties and interest combined.

Offer in Compromise

Under certain circumstances, the IRS may allow you to satisfy your delinquent tax debts for less than the assessed amount. This option is called an offer in compromise (OIC). You can apply for it if your unique circumstance affects your ability to pay your delinquent taxes in full, or paying them will create financial hardship. You’re eligible for an offer in compromise if you:

  • Meet all the tax return requirements and have made estimated tax payments.
  • Aren’t currently engaged in an ongoing bankruptcy proceeding.
  • Are an employer who has made tax deposits for the current and past two quarters before your application.
  • Have a valid extension for a current-year return.

If the IRS rejects your OIC application, you can appeal your rejection within 30 days.

Collection Not Collectible Status

If you can’t pay your delinquent tax debt due to financial hardship or any other extenuating circumstances, you can apply for a currently not collectible status. If the IRS grants your application, it’ll temporarily pause collection until your financial situation improves. While this temporary solution doesn’t eliminate your tax liability, it gives you more time to get your finances in order.

Get Help for Delinquent Taxes

If you’re struggling with delinquent taxes, we can help you explore resolution options at BC Tax. Contact us to discuss how we can help you.

BC Tax Insights Team
Posted By: BC Tax Insights Team

Authored by the BC Tax Insights Team, this article reflects the collective expertise and experience of our seasoned tax professionals. The Insights Team at BC Tax comprises specialists with a deep understanding of various tax scenarios and solutions. With a focus on providing informative, accurate, and practical insights, our goal is to guide readers through the complexities of taxation and financial planning. Every piece is crafted with the intent to help individuals and businesses navigate the ever-evolving world of taxes, ensuring clarity and confidence in decision-making.