Tax Problems

Back Taxes

Back taxes are delinquent or overdue taxes, typically from previous years. The IRS begins to charge penalties and interest on late or unpaid taxes the day after the tax filing deadline for that year. If the tax due remains unpaid, notices will follow, and the IRS and or state agency may eventually begin other collection measures.
The most common penalties are Failure to File and Failure to Pay.
Failure to file penalty is 5% of the unpaid taxes for each month or part of a month that a tax return is late.
The penalty won’t exceed 25% of your unpaid taxes

Failure to Pay is 0.5% of the unpaid taxes for each month or part of a month the tax remains unpaid.
The penalty won’t exceed 25% of your unpaid taxes.

IRS Collections

What Occurs When the IRS Collects?

If you do not respond to your tax bill and don’t contact the IRS to make payment arrangements, it will begin collections. The IRS can take several collection actions, including:

• Filing a Notice of Federal Lien
• Serving a Notice of Levy
• Offsetting a refund
• Wage Garnishment

Notice of Tax Lien

A tax lien is a legal claim on your property. Like a judgment lien, tax lien, or lender’s lien, the government can establish an interest in your property as a creditor. Your property may include your home, vehicles, boats, and bank accounts. Any property you buy after the lien is issued is also subject to a government lien. When there is a lien on your property, you can’t freely sell or transfer the property because the lien is a public record, and any potential buyers will be aware of the IRS’s claim. The IRS won’t release the lien until you pay your tax bill or work out an installment agreement.

Notice of Tax Levy

If you have not paid your tax bill after getting notice of a levy, the IRS may issue a Notice of Intent to Levy. With a levy, the IRS can seize your property, including cars, bank accounts, homes, Social Security benefits, and retirement income. Even if you don’t have a lot of property or money in any accounts, the IRS can still garnish your wages.

Refund Offset

If you owe money for a past tax year and are due a refund for the current tax year, the IRS could take the refund and future tax refunds to offset the past-due amount. If you have state income tax refunds coming, The IRS can levy them to pay down your tax debt.

Late Payment Penalties and Interest

Any taxes not paid by April 15 will begin accruing interest and penalty fees. The IRS assesses interest at the federal short-term rate plus 3%. The late-payment penalty is ½ of 1% for each month the bill remains due. If you never filed your tax return, there is an extra failure-to-file penalty of 5% of the monthly tax owed, up to 25%.
If you can’t pay the balance in full, you should pay as much as possible. The unpaid balance is subject to interest, compounded daily, along with monthly late payment penalties. The more you can pay now, the less you will owe interest and penalties.
Sometimes, you might also consider making a credit card payment toward your taxes or getting a loan. Check the interest rate for your credit card or what the bank charges to see if it is lower than the combination of interest and penalties imposed by the IRS.
Let a tax professional help you with the case; call us!