TAX PROBLEMS

Back Taxes

Liabilities from having back taxes adds up fast.

If you’re struggling to pay back taxes, there are options that can help you get out from under a burdensome tax debt.

Older woman stressed over taxes

“If you didn’t file your tax return, failed to report all your income, filed your return but didn’t pay the resulting liability, you may owe back taxes.”

- Alyssa Maloof Whatley

Stack of 100 dollar bills

Why Am I Being Asked To Pay Back Taxes?

Back taxes are taxes that remain unpaid from a previous tax year.

On top of the original back taxes you owe, there are penalties for failure to pay, failure to file (if you filed late) in addition to .05% interest that compounds daily. This can quickly increase the amount you owe.

There are several IRS approved programs that can put you back in good standing with IRS and resolve your back tax debt. Trying to determine which program best suits your particular facts and financial goals can be overwhelming to figure out alone. Speaking with a qualified tax attorney will help you figure out the right strategy for your situation.

What Happens If I Don’t Pay My Back Taxes?

If you don’t pay your back taxes, the IRS will typically send a Balance Due Letter CP14, Notice of Tax Due and Demand for Payment. If you do not respond, the IRS will continue to send collections letters approximately 30 days apart.

Types of collections letters include:

What Happens If I Don’t Pay My Back Taxes?

If you don’t pay your back taxes, the IRS will typically send a Balance Due Letter CP14, Notice of Tax Due and Demand for Payment. If you do not respond, the IRS will continue to send collections letters approximately 30 days apart.

Middle age man calculating back taxes

Pro Tip:

Don't wait to respond.

It is important to respond quickly to any IRS letters and correspondence you receive as you do not want to lose your rights to due process. You do not want to wait until the IRS has already filed a bank levy or wage garnishment as these types of collection actions can be prevented with proper planning.

Types of collections letters include:

Purple list circle

CP501

Reminder Balance Due

Blue list circle

CP503

2nd Reminder Balance Due

White list circle

CP504

Final Notice of Intent to Levy

Once the IRS has gone through the Notice phase, the IRS will issue a Notice of Levy and Your Right to A Hearing such as CP90, LT11, or Ltr 1058. This gives you 30 days to file a Collection Due Process Appeal (CDP Appeal) and stop collection activity.

If you fail to respond or do not file an appeal, the IRS can issue a levy, which is a legal seizure of your property or assets such as taking money from a bank account (bank levy) or your paycheck (wage garnishment).

In addition, the IRS can move forward with filing a Notice of Federal Tax Lien which is publicly recorded and creates a claim against your home or any other real or personal property you may own.

Middle age man calculating back taxes

Pro Tip:

Don't wait to respond.

It is important to respond quickly to any IRS letters and correspondence you receive as you do not want to lose your rights to due process. You do not want to wait until the IRS has already filed a bank levy or wage garnishment as these types of collection actions can be prevented with proper planning.

From left to right, Alyssa Maloof Whatley, Harrison Kulp, and Kiara Maxie

Are Back Taxes Ever Forgiven?

Yes, you may have heard that after ten years, the IRS has to write off unpaid tax debt as uncollectible due to the Collection Statute Expiration Date (“CSED”). You might even think you could just “wait out” the statute of limitations on collections.

For some taxpayers waiting could be a viable option. However, as with most legal answers it depends on a variety of factors. The first step is having a qualified tax attorney analyze your account transcripts to determine what the CSED is for each tax year and where your case is in the collection process.

For some taxpayers, waiting the IRS out is not an option because they are in active collections or have a field agent currently assigned to their case.

In these cases, you would need to seek an IRS approved repayment arrangement or currently non collectible status to prevent collection action such as wage garnishments, bank levies, and seizure of personal or real property (i.e. home).

The benefit of entering into an IRS approved repayment plan known as an installment agreement or currently non-collectible is that the statute of limitations continues to run during this period.

Will The IRS Work With Me If I Owe Back Taxes?

The IRS has a number of different repayment options and programs to resolve back taxes. For example, if the back taxes you owe are due to an error that wasn’t previously address, you could file an audit reconsideration or offer in compromise doubt as to liability.

If you owe joint liability with a former spouse, you could possibility qualify for innocent spouse relief. If you owe back taxes and can’t afford to pay in full, you could qualify for a partial pay installment agreement, currently non-collectible status, or even settle your tax debt with an Offer In Compromise Doubt as to Collectibility.

Each IRS program has rules for eligibility and has a formal process for requesting relief. It is always recommended to consult with a qualified tax lawyer to determine the origin of the liability, if the liability can be corrected if due to error, and if not, what is the next best option for resolving the liability based on each person’s unique financial situation and goals.

With all things tax related, it’s complicated. Determining the timeline for debt isn’t always straightforward. Partnering with a qualified tax professional can help you figure out the best approach for handling back taxes with the IRS.