What to Expect if You Owe the IRS $25,000 or More

Owing the IRS $25,000 or more raises questions about what happens next and how to resolve it. The IRS’s collection procedures get more aggressive, and payment options change. It also leads to compounding penalties, federal tax liens and wage garnishment or bank levies. Knowing the resolution options and when professional guidance makes sense should help.

What Happens When You Owe the IRS $25,000 or More

The IRS has legal authority to pursue multiple collection methods once tax debts surpass $25,000. Specifically, watch out for these consequences:

• Accrual of penalties and interest: The IRS charges a failure-to-pay penalty of 0.5% monthly on unpaid balances. This penalty can reach up to 25% of your original debt. Interest compounds daily at the federal short-term rate plus 3%. Combined penalties and interest can add thousands of dollars to what you owe.
• Filing of federal tax liens: The IRS typically files a Notice of Federal Tax Lien for large unpaid tax debts. A lien attaches to your current and future assets, including real estate, vehicles and bank accounts. It becomes a public record that affects your credit score and ability to sell property. The lien remains until you pay the full debt or the collection statute expires.
• Wage garnishment and bank levies: Wage garnishment means the IRS directs your employer to withhold part of each paycheck to pay your tax debt. The IRS can garnish wages without going to court after issuing a Final Notice of Intent to Levy. Bank levies, which are legal orders, freeze your accounts and allow the IRS to seize funds. Wage garnishment leaves only a small amount for basic living expenses, based on your filing status and dependents.
• Asset seizures and property claims: The IRS has legal authority to seize vehicles, real estate and business assets to satisfy unpaid taxes. It typically sells these properties at auctions and applies the proceeds to your balance. While asset seizure is less common, it becomes more likely with larger debts and nonresponse.

How the IRS Collection Process Works for Large Tax Debts

Understanding what to expect if you owe the IRS $25,000 or more starts with knowing the collection timeline. The IRS follows a sequence of notices before taking aggressive action:

Initial Notices and Billing Statements

Your first notice arrives as a balance due statement. If you don’t respond, the IRS sends follow-up notices over several weeks or months. Each notice shows your growing balance with accumulated penalties and interest. These early notices offer the easiest opportunity to set up payment arrangements.

Final Notice of Intent to Levy (CP90)

CP90 is your last warning before the agency can seize assets or garnish wages. This notice gives you 30 days to pay in full, establish a payment plan or request a Collection Due Process hearing. After 30 days, the IRS has legal authority to proceed with levies. You retain the right to appeal during this window, which temporarily halts collection activity.

Revenue Officer Assignment

Large tax debts may trigger assignment to a revenue officer rather than automated collection systems. A revenue officer is an IRS employee who can investigate your finances and take immediate action. They can conduct in-person interviews, request detailed financial statements and make collection decisions. Professional representation becomes critical at this stage, as licensed enrolled agents can negotiate on your behalf.

The 10-Year Collection Statute of Limitations

The IRS generally has 10 years from the assessment date to collect tax debt. Certain actions pause or extend this timeline, including bankruptcy filings, Offer in Compromise (OIC) applications and time spent living outside the U.S. The clock also pauses if you have payment plan applications under review. After 10 years, the IRS must stop collection efforts.

Payment and Resolution Options if You Owe $25,000 or More

Multiple resolution paths exist for taxpayers who owe the IRS $25,000 or more. The right approach can save you thousands of dollars. Here are your options:

Short-Term Payment Plans

You can opt for short-term payment plans if you have up to $100,000 of combined tax, penalties and interest. You have 180 days to pay your balance. There is no setup fee if you apply online. This option works best if you have the funds readily available.

Long-Term Installment Agreements

There are two types of long-term installment agreements:

• Streamlined: Streamlined installment agreements are for debts of $50,000 or less and require no financial disclosure.
• Non-streamlined: Non-streamlined agreements apply to debts over $50,000 and require detailed financial information using IRS Form 433-F or Form 433-A.

The IRS may file a federal tax lien with non-streamlined agreements. Business agreements over $10,000 require direct debit payments.

Licensed tax professionals can help prepare accurate financial statements and negotiate monthly payments based on your ability to pay. For instance, BC Tax reduced one client’s $95,000 tax liability to manageable $50 monthly payments through proper documentation and negotiation.

OIC

An OIC lets you settle tax debts for less than the full amount. The IRS accepts this option only if you can’t pay in full or doing so would create financial hardship. You must prove your reasonable collection potential is less than your total debt. You need to submit Form 656 with a detailed financial disclosure and an initial payment.

Tax professionals can maximize acceptance odds by properly documenting financial hardship. The OIC Pre-Qualifier tool also helps determine if you’re a potential candidate before applying.

Currently Not Collectible (CNC) Status

CNC status temporarily halts IRS collections if paying prevents you from meeting basic expenses. You must prove through Form 433-A that your monthly income barely covers necessary costs. The IRS reviews your financial status periodically. It can also remove the CNC designation if circumstances improve.

Interest and penalties continue accruing during CNC status. However, this option provides breathing room during hardships, such as job loss or medical emergencies. The 10-year collection statute also continues running during CNC periods.

Penalty Abatement

The IRS can remove or reduce failure-to-file and failure-to-pay penalties if you show reasonable cause. Acceptable reasons include serious illness, natural disaster or reliance on incorrect professional advice. First-time penalty abatement is for taxpayers with a clean compliance history for the previous three years. However, penalty abatement does not remove interest charges — only penalty amounts.

Penalty abatement can save thousands of dollars and make payment plans more affordable. Tax professionals identify which penalties qualify for abatement and prepare compelling requests.

Frequently Asked Questions

To further understand what to expect if you owe the IRS $25,000 or more, consider these common questions:

How Much Will the IRS Usually Settle For?

There is no standard percentage the IRS accepts. The IRS determines settlement amounts through reasonable collection potential. The formula considers your monthly income, allowable expenses, asset equity and future earning capacity.

How Many Years Will the IRS Let You Make Payments?

Short-term payment plans allow up to 180 days to pay in full. Long-term installment agreements typically extend for several years. All payment plans must conclude before the 10-year statute expires. Longer payment terms mean lower monthly amounts but more interest over time.

How Much Money Do You Have to Owe the IRS Before You Go to Jail?

If you filed honestly but can’t pay, criminal liability is not a concern. Tax debt is generally a civil matter, not a criminal one. Criminal prosecution requires proof of willful tax evasion or fraud, which means intentionally hiding income or falsifying returns. The IRS pursues criminal charges in extremely rare cases.

Get Professional Help With BC Tax

The longer you delay, the more penalties accumulate and the closer you move toward liens or levies.

BC Tax has helped thousands of clients resolve large tax debts. If you’re wondering what to expect when you owe the IRS $25,000 or more, our team provides clear answers and actionable, personalized solutions. Our enrolled agents have over 21 years of experience negotiating with the IRS. We start with a free consultation to understand your situation before creating a clear plan.

Our accreditations with the Better Business Bureau, National Association of Enrolled Agents and National Association of Tax Professionals reflect our commitment to professional service. Unlike firms that overpromise or change pricing mid-process, we provide accurate quotes from the start based on your actual situation. You can also count on transparent pricing and a 15-day cancellation period.

Contact BC Tax today for a free consultation.