What are Back Taxes?
Taxes that were either entirely or partially unpaid in the year they were due are known as back taxes. Back taxes owed by taxpayers may be at the federal, state, or local levels. Interest and penalties for unpaid taxes are regularly accrued.
If you owe back taxes, interest and tax penalties will raise your total debt. For each month that taxes are past due, there is a 1/2% late payment penalty. There is also a sizable late filing penalty in the event that the person never filed their taxes.
How Far Can the IRS Go?
The IRS typically has ten years to collect unpaid taxes. The statute of limitations prohibits further collection efforts after that point. The deadline began ticking after the tax was initially assessed. However, struggling taxpayers have a number of options available to them.
In order to ease the burden of past taxes, the IRS has also made it simpler to access payment agreements. A taxpayer can spread out the cost of repayment over time by paying back taxes through an installment arrangement in small, reasonable amounts.
How Do I Deal With Back Taxes?
The Offer in Compromise (OIC) program is provided by the IRS. This is an agreement between the taxpayer and the IRS to settle the taxpayer’s debt for less than what is owed.
Quick FactHere are steps on how to apply for an OIC: Step 1: Assess Eligibility Before proceeding with an OIC, determine your eligibility. The tax authority considers factors such as your income, expenses, assets, and future earning potential. Step 2: Gather Documentation Collect the necessary documentation to support your OIC application. Step 3: Complete Form 656 Obtain Form 656, Offer in Compromise, from the tax authority or their official website. Step 4: Submit the OIC Package Compile the OIC package, including Form 656, supporting documentation, and any required fees or payments. Step 5: Await Response and Review Once your OIC package is submitted, the tax authority will review your case. This process can take several months. During this time, they may request additional documentation or clarification. Step 6: Negotiate and Finalize It is essential to be prepared to negotiate and provide any additional information requested. |
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Frequently Asked Questions: Back Taxes
It’s important to note that the tax authority carefully evaluates each OIC based on its merits. Providing accurate and complete information, demonstrating financial hardship or inequitable circumstances, and adhering to the guidelines can increase the chances of having an OIC accepted.
Yes, it is possible to file an Offer in Compromise (OIC) even if you are currently in a payment plan with the tax authority. However, it’s important to consider that an OIC requires a detailed assessment of your financial situation.
Yes, you can typically set up a payment plan with the IRS or relevant tax authority if you’re unable to pay your back taxes in full. There are different types of payment plans available, including short-term and long-term installment agreements. It’s important to apply for a payment plan as soon as possible to avoid additional penalties and interest.
If you’re unable to pay your back taxes in full, you may be eligible for options such as an Offer in Compromise (OIC), which allows you to settle your tax debt for less than the full amount owed. Another option is to request Currently Not Collectible (CNC) status, which temporarily suspends collection efforts if you can demonstrate financial hardship. Consulting with a tax professional can help you determine the best approach for your situation.
Yes, the IRS offers various relief options for taxpayers experiencing financial hardship. These can include payment plans, Offers in Compromise, or Currently Not Collectible status. To qualify, you will need to provide detailed financial information to demonstrate your inability to pay. It’s advisable to work with a tax professional to navigate these options effectively and ensure you meet all requirements.
