What Happens When You Have Unpaid Income Taxes for Several Years?

by Jay P. Whickson, studioD

Sometimes people don't fill out a form 1040 because they simply don't have the money to pay the taxes owed. Other times, they may send the Internal Revenue System (IRS) the completed tax forms but with less than the required amount for the tax owed. In both cases, the problem doesn't go away and the IRS doesn't simply forget you exist. They become a creditor that wants the money owed or proof you don't owe any.

Time Frame

Normally the IRS notifies you after two years if you fail to file a return. They do your taxes for you. However, they don't give you any tax breaks. They can't, as they don't have your personal records. If you are several years behind in tax payments but filed your taxes, they take a different course of action and send you a registered letter notifying you of their intended actions.


Late filing and paying incur penalties based on your delay for either. In addition to penalties, they charge interest on both the penalties and balance owed. The interest changes each quarter. You potentially have eight different interest rates after two years, one charged each quarter.


Maybe you didn't owe the IRS anything but didn't file for some reason. They won't charge a penalty, but you potentially will lose any credits, such as earned income credit or refunds, after three years.


If you avoid contacting the IRS once they send you a notice for payment or an intent to file a levy, they can do some damage to not only your credit rating but also your bank account, paycheck or even Social Security check. They send you a letter called intent to levy and put a tax lien on your property. If you have no bank account or job, the IRS can attach your car or your home.


You can stop their actions by simply phoning or writing the IRS. If you're in a financial bind because of a job loss or illness, normally they'll work with you by accepting payments or even waiving the amount you owe. You'll find that they are not ogres but everyday people that don't wish to prosecute or persecute citizens with problems. You can also hire a professional to negotiate for you.


If you don't stop the levy process, it could cost even more. A levy, unlike a lien, means the IRS can seize your personal and real property and sell it. They can also seize retirement accounts and sell them for the taxes owed. The amount they receive for your property may not be what you'd receive if you sold it yourself. Removing a levy against any property or account requires a release of levy fee in many states, which also costs.

About the Author

Jay P. Whickson worked as an insurance rep, financial planner and stockbroker from 1979 until her retirement in 2007 when she began writing about the field of finance. Whickson has both a Bachelor of Science and a Master of Science in education from Indiana University. She also has post Masters courses in science and a number of different insurance and investment designations and degrees.

Photo Credits

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