Back taxes are taxes still unpaid after the applicable due date. They can arise from mistakes, missed filings, additional assessments or financial hardship. A balance alone does not establish fraud. This article explains general federal rules; state and local requirements can differ.
Accurate records, timely returns and payment planning reduce risk. They do not guarantee that no later adjustment will be made. Start with these steps:
- Determine which returns are required and complete them accurately.
- Pay by the applicable deadline; if full payment is impossible, file required returns and discuss available arrangements.
- Review discrepancies promptly and keep notices, supporting records and proof of payment.
- Reconcile tax, withholding, estimated payments and credits when preparing a return.
- An overpayment may qualify for a refund, subject to claim deadlines, amount limitations and possible offsets. A refund is not automatic merely because a calculation shows a credit.
- Check when a remaining balance is legally due and follow the notice’s payment and dispute instructions.
An IRS audit may propose additional tax, a refund or no change. A proposed adjustment is not automatically a final determination that must be accepted.
Common causes of back taxes
Unfiled returns
Filing is mandatory when applicable requirements are met. Income, filing status, age and special circumstances matter; wage withholding does not by itself remove the filing obligation. Filing may also recover an eligible refund when no return is otherwise required. Check the IRS filing requirements and the rules for the relevant year.
Audits and corrections
An audit examines reported information and supporting records. Selection does not prove an error or wrongdoing. Do not rely on an undated audit percentage to predict an individual case.
Arithmetic errors, omitted income or unsupported deductions can lead to proposed adjustments. Taxpayers may challenge findings through available administrative or court procedures. Read each notice: discussions with the IRS do not automatically extend a petition or response deadline.
Difficulty paying
A loss of income or unexpected expense can leave a balance even when a return is accurate. The obligation usually remains, but payment and hardship options may be available. Do not wait for collection action to assess those options.
A tax professional can help reconcile the account, identify deadlines and evaluate relief. Representation does not guarantee a reduced balance or a particular result.
Potential consequences
Civil liability and criminal conduct
Ordinary debt and tax crimes are different questions. Criminal provisions address specified conduct, including willful evasion or willful failure to meet certain duties; an unpaid balance alone does not prove those elements.
Civil collection and penalties can still have serious financial effects. Verify the amount and the applicable procedure instead of assuming a small balance has no consequences.
Earlier payment can limit future accruals, but it does not automatically cancel penalties or interest already incurred. Request any available relief under the applicable rules.
Filing penalties, payment penalties and interest have different calculations. The following descriptions concern ordinary individual income-tax rules; other returns and special circumstances can differ.
Failure-to-file penalty
An ordinary income-tax filing penalty is generally based on unpaid tax. A refund position does not excuse every business or information-return penalty, and delaying a refund claim can forfeit the refund.
File required returns even if you cannot pay in full. A valid extension generally changes the filing deadline, not the payment deadline. Special postponements must be checked separately.
The ordinary filing rate is 5% of unpaid tax for each month or partial month late, generally capped at 25%. When ordinary filing and payment penalties overlap, the filing component is reduced by the payment penalty. A separate minimum can apply after 60 days; consult the amount for the return’s due-date year and available relief.
Failure-to-pay penalty
The ordinary payment rate is 0.5% of unpaid tax per month or partial month, capped at 25%; it is not unlimited. Qualifying payment plans can reduce the rate, and specified levy-notice conditions can increase it. The applicable rate and relief depend on the facts.
Interest and borrowing costs
IRS interest rates may change quarterly, and underpayment interest generally compounds daily. It usually runs from the applicable due date until payment; rules for interest on penalties vary. There is no fixed 4% rate for every case.
Do not add penalties to an interest percentage and call the result an annual borrowing rate. Different time periods, filing/payment overlap and compounding can make that comparison misleading.
Before using a credit card or loan, compare its interest, fees and repayment terms with available IRS arrangements. Borrowing is not automatically cheaper or appropriate.
Professional advice should use the actual account, financial circumstances and deadlines. Compare proposed services and fees; a representative cannot promise that back taxes will disappear.
Neither income level nor the age of a balance determines criminal liability by itself. Preserve records and obtain advice promptly if deliberate noncompliance or an investigation is involved.
Federal tax liens
A lien secures a legal claim against property; it does not itself transfer ownership or seize the property. A federal tax lien generally arises after assessment, notice and demand, and failure to pay. A public lien notice alerts creditors. Payment in full generally leads to release within 30 days; discharge of particular property, subordination and withdrawal have separate requirements.
Levies and seizures
A levy can take property to satisfy a tax debt. It generally follows assessment, demand, nonpayment and a final levy/hearing notice at least 30 days before action, together with other applicable requirements. Exceptions exist, including some levies with hearing rights afterward. A lien and a levy are not interchangeable.
Collection can reach wages, bank funds or other property, subject to exemptions and procedural protections. Release may be required or available for reasons such as qualifying hardship or an improper levy; full payment is not the only possible basis. Release does not itself erase the debt or guarantee return of property already taken.
Read the IRS levy guidance, preserve the notice and act within the stated deadline. If collection prevents basic reasonable living expenses, contact the IRS promptly with financial evidence and consider available appeal or assistance options.
Resolving back taxes
Confirm the balance, file outstanding required returns and protect dispute deadlines. Then compare feasible payment or relief options. Keeping current obligations up to date helps prevent another balance while the earlier one is addressed.
Installment agreements
Eligible taxpayers may pay over time through an approved installment agreement. Terms depend on the debt, financial situation and applicable program; a single repayment period does not fit every case.
A plan does not erase the debt. Interest and applicable penalties usually continue, and current filing/payment obligations must still be met. Hardship may justify temporarily not-collectible status, but that generally delays collection rather than cancelling the balance.
Correcting or reducing a balance
Correction of an incorrect assessment, qualifying penalty relief or an approved collection alternative can change what must be paid. Each requires its own evidence and procedure; financial difficulty does not automatically eliminate the tax.
Offer in compromise
An offer in compromise may settle for less if the applicable requirements are met. The IRS evaluates facts such as income, expenses, assets and ability to pay. A sympathetic explanation alone does not establish eligibility or compel acceptance.
Review the current application rules, required filings/payments and any applicable fee exception. An open bankruptcy generally prevents an OIC application. If accepted, comply with the offer terms and continuing tax obligations; representation does not guarantee approval.
Bankruptcy considerations
Chapter 7 may liquidate nonexempt assets and discharge some debts; many tax debts are excluded, and valid liens can survive. Eligibility, return history, tax type, timing, exemptions and jurisdiction matter. Chapter 13 generally uses a repayment plan and may discharge qualifying debts after completion. Neither chapter automatically eliminates all back taxes or guarantees retention of a home.
The automatic stay generally pauses many collection actions, but exceptions and limits apply. Obtain bankruptcy and tax advice before filing; do not assume that filing permanently stops every action or guarantees discharge of a particular tax.
The collection limitation period
The IRS generally has 10 years from assessment to collect, with a separate period for each assessment. The clock does not simply start with the tax year or original filing deadline. Check transcripts and the actual collection expiration date before relying on it.
Bankruptcy, pending offers, certain payment-plan requests and other events can suspend or extend the period. A later return does not universally restart every clock; additional assessments can have separate dates. Do not ignore notices or assume that merely waiting 10 years guarantees release of every liability or lien.
Preparing an action plan
Gather returns, notices, account transcripts and payment records. Separate disputed amounts from amounts agreed to be due, identify deadlines, and compare payment plans, eligible relief, settlement or bankruptcy options with their limitations.
A documented plan should also address current withholding, estimated payments and future filing obligations. Review the plan when income or circumstances change.
Help with back taxes
Contact Segal, Cohen & Landis (SCL) to discuss your notices, deadlines and potential representation. Confirm the proposed scope and fees before engaging services.
Choosing a representative
Verify credentials, relevant experience, who will handle the work and the written fee agreement. Be cautious about guaranteed outcomes. A free initial consultation alone is not evidence that a service is good or bad.
Have questions about this topic? Talk to an IRS attorney today.
Segal, Cohen & Landis, P.C. — Beverly Hills. Serving clients nationwide.
Samuel Landis, Esq.
LL.M. (Tax) · Selected to Super Lawyers®
Sam Landis is a Beverly Hills IRS tax attorney specializing in IRS collection defense, audit representation, and international tax compliance for foreign nationals and US expats.