Back taxes

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Back taxes is a term for taxes that were not paid when due.[1] Typically, these are taxes that are owed from a prior year.[2]

Taxpayers can have unpaid back taxes at the federal, state and/or local levels. Back taxes accumulate interest and penalties on a regular basis. Unpaid back taxes can be a serious issue for many taxpayers who don’t have the means to pay them. The Internal Revenue Service (IRS) has recently turned over the collection of unpaid back taxes to a private collection agency. Taxpayers who lack the means to repay taxes may often negotiate a lesser settlement via an offer in compromise with the IRS either directly or through a tax attorney.[3]

The government usually has ten years from the date the tax was assessed to collect. The back taxes could be assessed for one of three reasons:

1. By filing a return, but not completely paying your taxes by the deadline This is the most common reason for back taxes. Most of the time, people who owe back taxes file their tax return, but fail to pay their taxes by the deadline for one reason or another. In these cases a “failure to pay” penalty would be assessed in addition to the original tax.

2. By failing to report all of your income In this case, one could have filed and even paid the tax return. However, one will still be assessed back taxes if the income is not reported. In a case where income has not been reported a fine is assigned on top of the tax of a correct income.

3. By neglecting to file a tax return all together If one does not file a tax return all together, the IRS will file one instead. Because the IRS gets the necessary records from employers, they can keep track of those who do not file returns. [4]

The inability to pay taxes when they are due can be done in two different ways: unintentionally (there can be an error when filling out the taxes) or intentionally (tax evasion). Depending upon the circumstances, the government may take one of many strategies to deal with back taxes, such as pressing charges, demanding that you pay immediately, or sometimes offering a voluntary disclosure program which helps avoid criminal charges and allows a variety of payment options.[5]

If an individual or a business refuses to pay back taxes, tax liens are a last resort to force repayment. A tax lien is a legal claim by a government entity against a noncompliant taxpayer’s assets. To get rid of a lien, the taxpayer must pay what he or she owes, get the debt dismissed in bankruptcy court or reach an offer in compromise with the tax authorities. Federal and state governments may place tax liens for unpaid federal or state income taxes, while local governments may place tax liens for unpaid local income or property taxes. If the taxes remain unpaid, the tax authority can then use a tax levy to legally seize the taxpayer’s assets (such as bank accounts, investment accounts, automobiles and real property) in order to collect the money it is owed. Tax liens are publicly recorded and may be reported to credit agencies. These two features of tax liens effectively prevent the sale or refinancing of assets to which liens have been attached, and prevent the delinquent taxpayer from borrowing money.[6]

The consequences for not paying one’s back taxes differ. IRS may send written notices regarding back taxes and usually expect a response in 30-60 days. A penalty fee is issued if the taxes remain unpaid. The minimum penalty fee is $135. Also, one has to pay interest on the unpaid taxes. The interest rate is usually determined by the federal short-term rate.
IRS can summon taxpayers, which is a legal requirement for the taxpayer to visit an IRS officer and bring appropriate records and documents. A third party with relevant information about the case, such as a record keeper from a financial institution, can also be summoned by the IRS. If one has a right to tax refunds, the IRS will not hand the refund to the taxpayer until he or she has repaid the back taxes.
Other, more severe consequences are losing ground on one’s credit report, having one’s property seized, to declare bankruptcy and to serve jail time. [7]


  1. ^ "back taxes". Investor Words. Archived from the original on 9 March 2009. Retrieved 2009-03-26. 
  2. ^ "Glossary B". New York Real Estate. Retrieved 2009-03-26. 
  3. ^ "Investopedia". Retrieved 2017-05-05. 
  4. ^ [: "Omni Financial"] Check |url= value (help). Retrieved 2017-05-05. 
  5. ^ "Business Dictionary". Retrieved 2017-05-05. 
  6. ^ "Investopedia". Retrieved 2017-05-05. 
  7. ^ "Business Insider". Retrieved 2017-05-05.