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Back Taxes – What Are They?
Back taxes refers to delinquent taxes which are overdue. Your record is researched to determine where you stand with the IRS, what you owe, what years are unfiled, what years are necessary to file and to acquire documentation to do those returns. Back taxes come into existence a few different ways.
- If a taxpayer fails to file returns for a number of years, the IRS will file returns for the taxpayer and thereby assess a tax.
- If a taxpayer is audited and the IRS determines more tax is due, a “back tax” is then also assessed against the taxpayer.
- When a taxpayer files returns but is unable to pay the tax due, then a back tax is assessed against the taxpayer.
Will I Owe Penalties for Back Taxes?
Generally, penalties accrue when a taxpayer fails to file and/or pay taxes on time. The IRS will sometimes abate the penalties if the taxpayer can meet a legal standard known as reasonable case. Usually, reasonable case means that the taxpayer was a victim of crime, substance abuse, mental disease or natural disaster. The taxpayer must have some sort of documentation to prove the event.
Can I Reduce The Amount of Back Taxes That I Owe?
Yes. Back taxes can be reduced by a variety of actions (or inactions):
- Back taxes can be reduced if the IRS agrees to accept an offer in compromise from the taxpayer. In this instance the IRS recognizes that the settlement of an offer in compromise with taxpayer is more valuable than trying to collect the unpaid back taxes over a long period of time.
- Back taxes can be reduced or possibly eliminated by filing for a Chapter 7 bankruptcy. Special rules apply to the discharge of taxes through the bankruptcy court so a capable tax attorney or bankruptcy attorney must be consulted.
- Back taxes expire under operation of law after 10 years from the date that they came due. Yes, it’s true. IRS tax debts disappear after 10 years if the IRS has not been able to collect them. There are some extremely rare cases where back taxes may last longer than 10 years. If this has occurred, please consult with a competent tax attorney.
It is a very rare event when the IRS prosecutes a person for back taxes. Generally, the IRS and Justice Department seek to prosecute individuals for back taxes when the amounts are very large and the taxpayer has committed some sort of fraud upon the government. If you have concerns regarding your conduct, be sure to consult with an experienced tax attorney.
How Can I Resolve IRS Tax Debt that I Cannot Afford to Pay?
There are a few processes to resolve an unpaid IRS debt. By far, the most common is to enter into an installment arrangement with the IRS by communicating with the IRS Collection Division. There are numerous ways to enter into and negotiate terms of an installment arrangement with the IRS. Please note, some on-line services assert that there is an unnegotiable formula so as to entice you to use their automated services. This is not true. A lot of negotiating room is available with installment arrangements (which includes non-collectible status).
It is possible to appeal an unsatisfactory installment arrangement proposal from the Collection Division to the “Independent Office of Appeals”. Another method to resolve unpaid taxes is to submit an “Offer in Compromise”. To succeed with an IRS Offer in Compromise, which will substantially reduce the tax you owe (the reduction of tax is usually more than 90%), you merely need to prove to the IRS you cannot afford to pay the tax due. This process requires the provision of extensive documentation to the IRS and requires many months of processing and negotiating.
Finally, many tax liabilities may be dischargeable in bankruptcy. Specific rules apply as to whether a tax liability is dischargeable.”
See What the IRS Has to Say About Back Taxes:
Unfiled Tax Returns: Consequences and Compliance
Need Help with Filing or Settling Back Taxes?
Please feel free to contact us regarding your back taxes. Every tax matter is unique because every person’s situation is unique. We can quickly and efficiently analyze your circumstances and propose various options of resolution.
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