Back taxes

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

In the United States, unpaid taxes can be owed at federal, state and/or local government levels and therefore are assessed by them. Paying the full amount of tax debt as soon as possible is always the least expensive option for the taxpayer because of penalties and interest cumulation. In 2016 the Internal Revenue Service (IRS) began a new private collection program of certain overdue federal tax debts. The new program authorized designated contractors to collect, on the government's behalf, outstanding inactive tax receivables.

Private Collection Agencies Selected
CBE (Iowa, US) ConServe (New York, US) Performant (California, US) Pioneer (New York, US)

Via an offer in compromise taxpayers lacking the means to repay taxes may negotiate a lesser settlement with the IRS.[3]

From the date the tax is assessed the government usually has 10 years to collect.

The origin of back taxes[edit]

One may be assessed back taxes for one of the following three reasons:

  • Filling a return without completely paying all taxes when they are due

This is the most common reason behind back tax emergence. In this case the person that failed to pay taxes by the deadline is not only obligated to pay the original tax, but in addition will be charged a "failure to pay" penalty.

  • Failing to report all income

In this case it may even be so that the person filled his tax returns and even paid the taxes. But failing to declare all income will arise back taxes. The IRS gets information from third parties such as banks, businesses (e.g. copies of peoples W-2 forms), meaning they have an accurate picture about peoples incomes. If the IRS notices a discrepancy between a persons report and the records they send a Proposed Tax Change Notice. If so, a person may either dispute the taxes owed or simply make arrangements to pay the proposed sum (plus fines). The notice deadline is 45 days.[4]

  • Neglecting to file a tax return altogether

When failing to file a tax return the IRS will do so for you. Based on various records and W-2 forms from employers they accurately assess tax returns. IRS filled tax returns give the fewest tax deductions and credits possible. Unpaid taxes on these replacement returns give arise to back taxes.[5]

Reasons behind back taxes[edit]

The reason behind not paying taxes may be of two types:

  1. Unintentional (there can be an error when filling out the tax returns) or
  2. Intentional (Tax Evasion)

Depending on the circumstances, the government will implement a certain strategy on how to deal with back taxes. Governments strategies may vary from the rigorous option of pressing charges or simply demanding that you pay immediately to offering a voluntary disclosure program which allows a broad variety of payment methods and helps avoid criminal charges.[6]

If an individual or a business refuses to pay back taxes, tax liens are the 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.[7]

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. [8]


  1. ^ "back taxes". Investor Words. Archived from the original on 9 March 2009. Retrieved 2009-03-26.
  2. ^ "Glossary B". New York Real Estate. Archived from the original on 2009-06-27. Retrieved 2009-03-26.
  3. ^ Staff, Investopedia (2008-10-05). "Back Taxes". Investopedia. Retrieved 2018-04-20.
  4. ^ "IRS Letter 2030 - Proposed Changes to Your Tax Return | H&R Block". Tax Information Center. 2017-11-02. Retrieved 2018-04-20.
  5. ^ "What Are Back Taxes | Omni Financial". Retrieved 2018-04-20.
  6. ^ "What are back taxes? definition and meaning". Retrieved 2018-04-20.
  7. ^ Staff, Investopedia (2003-11-24). "Tax Lien". Investopedia. Retrieved 2018-06-19.
  8. ^ "12 terrible things that could happen if you don't do your taxes". Business Insider. Retrieved 2018-06-19.

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