Do You Owe Delinquent Taxes to the IRS?

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What is Considered Delinquent Federal Tax Debt?

A delinquent tax is a tax that hasn’t yet been paid to the IRS, which includes various types of federal taxes, such as income tax, payroll tax, or excise tax. Whether you’re an individual or a business, failure to file your taxes will lead to delinquent status once you have missed the filing deadline, and they’re considered delinquent taxes.

Consequences of Being on the IRS Delinquent List

There are various actions the IRS can take to enforce collection when taxes are left unpaid.

  1. Before doing anything else, the IRS will notify you of your tax debt, with a detailed breakdown of fees, by mail. 
  2. If you fail to respond to the notification of your outstanding tax debt, the IRS Automated Collection System (ACS) may seize your bank accounts and/or wages.
  3. If you owe taxes to the IRS and end up with a tax refund due to you in a later year, the IRS may take your refund. 
  4. The IRS may charge you interest.
  5. The IRS may charge you penalties.
  6. If you received notice of your tax debt, and maintain delinquent status by not paying what is owed, the IRS may file a Notice of Federal Tax Lien.
  7. The IRS may seize your money and assets.
  8. Furthermore, you may be unable to travel abroad.

What Can You Do If You Owe Delinquent Taxes?

If you fail to pay your taxes when they’re due, the IRS initiates the collections process, typically by sending a delinquent tax notice. It outlines the total amount due, including penalties and interest. Until the balance is paid, interest will continue to compound daily and monthly penalties will be assessed. Addressing the notice promptly is crucial to avoid further penalties and interest accumulation.

You have several options available to address the issue:

  • Apply for a payment plan: You can negotiate a repayment schedule with the IRS. However, you’ll need to make monthly payments until the tax debt is fully paid.
  • Request an Offer in Compromise: In some cases, the IRS may accept a reduced amount to settle your tax debt. Check your eligibility for OIC.
  • Seek penalty abatement: If you’ve missed tax deadlines for the first time, you may qualify for penalty abatement, where the IRS waives penalties associated with late payment or filing.
  • Request hardship status: If you’re unable to pay any amount due to your financial hardship, you can request hardship status that the IRS stop collection actions until your situation improves. 

Can the IRS Hold My Tax Refund to Satisfy Any Delinquent Taxes?

Yes. The IRS can legally hold your refunds until your unfiled tax returns are submitted to ensure you don’t have a tax debt. They can also use your refund to satisfy the tax debt.

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Can I Get a Passport if I Owe Taxes to the IRS?

If you owe serious delinquent federal taxes (legally enforceable federal tax debt), your passport application may be rejected, and your existing passport could even be revoked. Consequently, you may not be able to travel abroad until you resolve your tax issues.

Furthermore, if you find yourself blacklisted while abroad and need to return to the US, a passport with limited validity may be issued for your return. However, upon arrival in the US, you may be unable to leave the country until you address your tax debt.

When you receive notice of CP508C, this means the IRS will contact the Ministry of Foreign Affairs to revoke your passport or reject your passport application. As a result, you won’t be allowed to travel abroad. Before getting the notice, you must take action to avoid this consequence.

  • The IRS will mail notice CPC508C to your last known address. However, you should take action without waiting for this notification because it’s possible to miss the notifications sent by mail, so you may not be aware of the process.
  • After the Ministry of Foreign Affairs receives the document of your tax debt, it waits 90 days for you to resolve the problem. If you pay your tax debt within that time or prove the certification is inaccurate, the IRS will reverse your certification. When the IRS reverses certification, it sends notice CP508R. The IRS then notifies the Ministry of Foreign Affairs within 30 days.

Can You Get a Mortgage If You Owe Federal Tax Debt to the IRS?

Yes, you can still get a mortgage even if you owe federal tax debt to the IRS. However, the process might be more challenging, and your options may vary depending on your situation.

If your tax debt is classified as delinquent tax debt, meaning you owe back taxes to the IRS, but it hasn’t escalated to a tax lien yet, you have more options available. You can work on paying off your tax debt or set up a repayment plan with the IRS. 

However, if your tax debt has escalated to a tax lien, the process becomes more limited. A tax lien is a public notice filed by the IRS that gives them a legal claim to your property, including, but not limited to, real estate. Having a tax lien makes it more difficult to get approved for a mortgage.

Despite these challenges, it’s not impossible to get a mortgage with a tax lien. For example, with an FHA loan, you may still be approved if you set up a repayment plan with the IRS and the IRS agrees to subordinate their lien to the lender’s mortgage. However, for conventional loans, you may need to repay the tax debt in full before being approved for the mortgage.

Although having a complicated tax debt process, seeking advice from tax professionals can help navigate these challenges. Let’s contact us for a free initial consultation today.

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Do You Owe Delinquent Taxes to the IRS?

Delinquent taxes can lead to severe penalties, asset seizures, and travel restrictions. Don’t wait until it’s too late.
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or Call 1-855-212-5900