Having unpaid taxes or back taxes can lead to numerous problems including significant tax penalties and late fees. Both IRS and most states offer a variety of options to limit or stop collection actions and penalties to financially distressed taxpayers that owe taxes. Below are lists of various enforcement actions that can take place as well as possible solutions that Taxpayers may have to resolve their issues:
Possible Enforcement actions:
Tax Lien: A tax lien is the government’s claim on the taxpayer’s property. The existence of the lien ensures that they get first rights to your property over other creditors in case the taxpayer decides to sell or foreclosure takes place.
Wage Garnishment: The taxing authority will contact your employer with a written notice and demand they withhold a certain percentage of your pay to cover unpaid taxes.
Bank Levy: The tax authorities will contact your bank and demand a hold be put on the funds that are in the account and then seize the funds available in the bank account to cover the unpaid tax liability.
Property Seizure: The tax authorities may seize assets such as your car, boat, house or other asset of value that can be sold to cover the unpaid tax liability.
Jail time: Incarceration is possible but highly unlikely. Depending on the circumstances, taxing authorities can have a taxpayer arrested and/or charge for crime.
Installment Agreement: Under this category the taxpayer has two options. First would be an installment agreement that is offered by the tax authority based on the amount owed and taxpayer can be set up on the payment plan without providing any financial information. The second option would be partial installment agreement or an installment agreement that can be set up based on the financial information provided by the taxpayer.This payment agreement allows taxpayers to pay a smaller monthly amount than would otherwise be required with a regular installment agreement. This amount is generally determined by their disposable income or financial situation. In many cases, the amount is so small that it does not allow the taxes to be paid off in full before the statute of limitations or Collection Statute Expiration Date (CSED) expires on the debt. As a result, any taxes unpaid by the CSED will not have to be paid back.
Offer in Compromise(OIC): This is a solution that is offered to taxpayers that have a high likelihood of not being able to pay their taxes off before the statute of limitations on the tax debt expires. With this option, taxpayers can settle their taxes for much less than the total amount of taxes owed. This option also depends on taxpayer's net disposable and ability to pay.
Currently Non-Collectible (CNC): Getting qualified for hardship status puts a hold on collection activities on the taxpayer until their financial situation improves enough to allow them to pay money towards the debt without causing financial hardship. In many cases, the statute of limitations expires before the debt is collected and the taxpayer no longer owes the tax debt originally owed. Be aware that certain taxpayer actions such as bankruptcy can extend the CSED.
Penalty Abatement: This option is typically used in connection with other methods mentioned above. Taxpayer may qualify for a first time penalty abatement or If the taxpayer has a good enough reason for not being in compliance with tax laws, also known as reasonable cause, then penalties could be removed or reduced.
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