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What Are Back Taxes?

The concept behind the phrase “back taxes" is fairly straightforward. Back taxes are taxes owed during a particular tax year that aren't paid by the tax due date. In other words, if a taxpayer can't pay all of their taxes for a year, they will owe back taxes.

If back taxes are owed, the taxpayer's debt will continue to increase with the inclusion of interest and tax penalties. Late payment penalties include 1/2 of 1% for each month the taxes remain due past the due date. If the taxpayer never filed taxes, there is also a significant late filing penalty.

IRS Can Go Back 10 Years

In general, the IRS has 10 years to collect back taxes. After that time, the statute of limitations limits further collection action. The time limit starts to run from the time the tax was originally assessed.

For example, taxes from the year 2012 are generally assessed by about April 15, 2013 (depending on when the taxpayer filed the return). A taxpayer who owes back taxes from 2012 is generally subject to IRS collection actions until about April 15, 2023.

During the 10-year period, the IRS has many tools to collect back taxes. This generally begins with notices of deficiency, followed by a notice of intent to levy. If the IRS issues a tax lien, the IRS can garnish a taxpayer's wages to recover the unpaid taxes. The IRS will also impose monthly penalties for failing to pay the taxes as an incentive to pay the back taxes sooner rather than later.

Fresh Start After Tax Debt

While the IRS can be unrelenting in its hunt for back taxes, the agency generally tries to work with struggling taxpayers to come up with a payment plan to provide tax relief. Taxpayers may even be able to request penalty relief, depending on their individual situation. The IRS can provide tax penalty relief where there was reasonable cause for failure to meet your tax obligations, including:

  • Fire or natural disaster
  • Death or serious illness of someone in the taxpayer's family
  • Inability to obtain records

The IRS has also simplified access to installment agreements, to lessen the burden of back taxes. An installment agreement allows a taxpayer to pay their back taxes in small, manageable payments, which spreads out the financial impact of repayment over time.

The IRS also has an Offer in Compromise (OIC) program. An Offer in Compromise is an agreement between a taxpayer and the IRS to settle the taxpayer's debt for less than what is owed to the IRS. The IRS has flexibility in performing the financial assessments necessary to determine whether a taxpayer should receive on OIC or not, made on a case-by-case basis.

All of these options can help taxpayers who owe back taxes get out of debt with the IRS. The best strategy, however, is to face the problem of a large tax bill proactively before back taxes even become an issue.

Legal Help for Back Taxes

If you owe back taxes, it can seem like it will be impossible to ever pay them off. The IRS has opportunities to help you pay down your tax debt or eliminate part of the back taxes. Talk to your tax attorney about payment plans, getting a waiver of tax penalties, or an offer in compromise to reduce your liability. Contact an experienced tax law attorney for help.

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Contact a qualified tax attorney to help you navigate your federal and/or state tax issues.

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