The Internal Revenue Service (IRS) does not mess around when it comes to taxes. In addition to audits and investigations, those who fail to settle their tax bills can find themselves facing surprising repercussions. Three examples include the loss of refunds, loss of funds directly from paychecks and limited ability to leave the country.
#1: Recapture refunds
There are instances when the IRS can recapture, or essentially keep, a taxpayer’s tax refund. The IRS can recapture or offset the tax refund for past due federal taxes until the taxpayer settles the debt.
#2: Levy
Depending on the details of the tax debt, the IRS can pursue a levy. A levy is a legal tool that allows the agency to directly garnish wages from the taxpayer’s bank or other accounts. It can also allow the government to seize property like vehicles or real estate. This action is generally preceded by a Final Notice of Intent to Levy and Notice of Your Right to a Hearing. Anyone who receives these documents is wise to take the matter seriously and consider alternative options to deal with their tax bill.
#3: Passport denials
The IRS can also limit the ability for taxpayers to leave the country when seriously delinquent with their tax obligations. This involves collaboration with the State Department who would deny the taxpayer’s application for a passport or revoke a currently held passport. In 2026, the IRS considers a taxpayer’s obligations “seriously delinquent” when at or above $66,000.
Options to manage tax debt
Those who find themselves facing an unmanageable tax bill have options, including the IRS Fresh Start Initiative. The agency has stated the program is focused on helping taxpayers get back on track. The reality is taxpayers who are considering pursuing these options should tread carefully as qualifying for the offerings included in the initiative is not an easy process.
Offerings include penalty relief, offers in compromise and repayment plans. The repayment plans can be short or long-term. The short term plan generally extends payments over a period of 180 days while the long-term plan, also known as installment agreements, provides additional time. The application process can be complex and denials are common.
Tax debt can create problems that go beyond a tax bill. In addition to penalty fees and fines, taxpayers can find themselves dealing with lost refunds, wages and property as well as difficulties with travel. Legal counsel with experience in this niche area of law can help review options and help you to find a path forward.