back taxes

What are Back Taxes?

Have you ever had a balance due after filing your taxes? Similarly, have you forgotten to file and owed the IRS taxes? This is what we refer to as back taxes. You can owe back taxes at a local, state, or federal level and acquire interest.

Unpaid taxes are not uncommon. However, disregarding your back taxes can be detrimental to your financial stability. By holding off on paying overdue taxes, you are putting yourself at risk to increase the liability, or even accrue penalties. It’s becoming increasingly difficult for taxpayers with back taxes to get by without being hounded by the IRS.

How to Resolve Back Taxes

The best option, though not always the most feasible, is to pay your taxes back in full. The IRS’s repayment plans are not always convenient to the taxpayer.

While you can utilize the initiatives that were created by the government to pay back your taxes, most people don’t know which programs apply to their situation. Each initiative has its own set of complex and confusing criteria.

In order to achieve the best resolution possible for your case, it may be in your best interest to hire a tax professional to represent you. Tax professionals can determine which option will offer the most effective and save you the most money.

The Consequences of Not Paying Back Taxes

The IRS doesn’t seem to run out of ways to discipline taxpayers who owe back taxes.

Assessment of Interest and Penalties

Back taxes become next to impossible to payback overtime due to interest and penalties added onto the initial balance. Additional charges can total as much as 50% of the liability!

Interest- The IRS actually considers back taxes to be equivalent of a loan. Much like a loan, there is an interest rate, which changes every three months. It’s calculated by taking the federal short-term rate and adding 3%.

Penalties- Penalties are assessed at the rate 0.25% to 1% of the back tax amount due for each month that you’re past due. The maximum amount that this penalty can reach is 25% of the original balance owed.

Enforced Collection Activities

While the IRS will begin the process of collecting past due taxes with mild letters and notices; the collection tactics become increasingly aggressive over time. The IRS may eventually file a tax lien, issue a levy, or garnish your wages.

Liens- A tax lien allows the IRS to take ownership stake against your assets. A lien can be placed on your bank accounts, property, or any other asses that has significant value. Including a vehicle!

Levies- The physical seizure of your property to satisfy debt is called a levy. Levies can be applied to retirement accounts, bank accounts, physical assets and even pending wages. A levy is usually one of the final attempts to collect back taxes, after all other methods have failed.

Wage Garnishment- Your employer may be directed to deduct a predetermined amount from each paycheck and forward that amount to the IRS. Other wages that can be garnished include your tax refund and unexpected funds like inheritance.

What to Do if You Owe Back Taxes Currently

For an effective resolution for your case, you can contact us and be connected with an expert. Our consultations are completely free of charge with no obligation.

Any new or systemic Liens and/or Levies will also be suspended for the time being.

For taxpayers who are considered “seriously delinquent”, the IRS will suspend any new certifications for the remaining period. Any taxpayer who falls into this category in reminded and encouraged to enter into an Installment Agreement or apply for an Offer In Compromise.

The IRS will not forward any new delinquent accounts to private collection agencies at this time.

Taxpayers have until July 15, 2020 to verify to the IRS they are qualify for the Earned Income Tax Credit or to confirm their income. If the taxpayer is unable to verify their credentials or provide appropriate documents for this credit, they are encouraged to notify the IRS before the deadline. No cases will be denied this credit for failure to provide requested information until July 15.

Case workers will continue business as usual. However, most case work will be conducted remotely (video/over the phone conferences). Any requests for documentation sent by the Office of Appeals should be responded to in a timely manner to ensure a smooth process.

The IRS will continue to take the appropriate measures to stay compliant and protect the applicable statutes of limitations. In situations where certain statutes may be compromised, taxpayers are encouraged to extend such statutes. Otherwise, Notices of Deficiency will be issued by the IRS and similar actions will be pursued to protect the interests of the government in preserving such statutes. Where a statutory period is not set to expire during 2020, the IRS is unlikely to pursue the foregoing actions until at least July 15, 2020.

Practitioners are reminded that PPS wait times may be significantly longer, depending on staffing levels and allocations going forward. The IRS will continue to monitor this as situations develop.

“The IRS will continue to review and, where appropriate, modify or expand the People First Initiative as we continue reviewing our programs and receive feedback from others,” Rettig said. “We are committed to helping people get through this period, and our employees will remain focused on these and other helpful efforts in the days and weeks ahead. I ask for your personal support, your understanding – and your patience – as we navigate our way forward together. Stay safe and take care of your families, friends and others.”

Learn how easy it is to qualify for tax savings.

Mike Wehner

Mike has been an enrolled agent and tax preparer for over 18 years and is intimately familiar with the Tax code and best practices to resolving tax debt.

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