Owe Back Taxes: What Is The Solution?

Owe Back Taxes: What Is The Solution?

Back taxes refer to unpaid or overdue taxes from previous years. When an individual or business fails to pay their taxes in a timely manner, they accumulate a tax debt, which includes the original tax amount owed plus any applicable penalties and interest. There are various reasons why someone may have back taxes. It could be due to a failure to file tax returns, underreporting income, claiming incorrect deductions, or simply not paying the taxes owed. In some cases, individuals or businesses may not have been aware of their tax obligations or may have experienced financial difficulties that prevented them from fulfilling their tax responsibilities. When a taxpayer has back taxes, the tax authorities, such as the Internal Revenue Service (IRS) in the United States, typically take steps to collect the outstanding debt. This can involve sending notices to the taxpayer, imposing penalties and interest on the unpaid amounts, and taking legal action if necessary. It is important to address back taxes promptly to avoid further penalties and potential legal consequences. Taxpayers can often work with the tax authorities to establish a payment plan, negotiate a settlement, or explore other options to resolve their tax debt. Seeking the assistance of a tax professional can be helpful in navigating the process and ensuring compliance with tax laws.

Options To Solve Back Taxes For Individuals

The Internal Revenue Service (IRS) offers several tax resolution programs designed to help taxpayers who are unable to pay their tax debts in full. These programs aim to provide individuals and businesses with options for resolving their tax issues and potentially reducing the overall amount owed. Here are some of the main IRS tax resolution programs:

Installment Agreement 

This program allows taxpayers to make monthly installment payments to the IRS until the tax debt is fully paid. The IRS offers different types of installment agreements, including long-term agreements for larger debts and streamlined agreements for smaller debts.

Offer in Compromise (OIC) 

The OIC program allows taxpayers to settle their tax debt for less than the total amount owed if they can demonstrate that paying the full amount would cause financial hardship. To qualify for an OIC, taxpayers must meet certain eligibility requirements and provide detailed financial information to the IRS.

Currently Not Collectible (CNC) Status

 If a taxpayer is experiencing significant financial hardship and cannot afford to make payments on their tax debt, they may be eligible for CNC status. While the tax debt remains, the IRS temporarily suspends collection efforts until the taxpayer’s financial situation improves.

Penalty Abatement 

Under certain circumstances, taxpayers may be able to request a reduction or elimination of penalties assessed on their tax debt. This can be done through a penalty abatement request, which requires providing a reasonable cause for the failure to pay or file taxes on time.

Innocent Spouse Relief 

This program provides relief to taxpayers who believe they should not be held responsible for a spouse or former spouse’s tax liabilities. Innocent Spouse Relief can help protect individuals from being held liable for their partner’s tax debt in cases where there was erroneous reporting or fraud.

Partial Pay Installment Agreement

A partial pay installment agreement (PPIA) is a tax resolution program offered by the Internal Revenue Service (IRS) in the United States. It allows taxpayers to make reduced monthly installment payments towards their tax debt when they are unable to pay the full amount owed. Under a partial pay installment agreement, the IRS agrees to accept less than the total amount owed over an extended period of time. The agreed-upon monthly payments are based on the taxpayer’s financial situation, taking into account their income, expenses, and assets.

Correct Inaccurate Returns

To correct inaccurate tax returns means to identify and rectify errors or mistakes in previously filed tax returns. When you file your taxes, you are responsible for providing accurate and complete information to the tax authorities. However, it is not uncommon for errors or omissions to occur due to various reasons, such as miscalculations, incorrect data entry, or missing documentation.

Options To Solve Back Taxes For Businesses

When dealing with business back tax resolutions, there are several options available to address and resolve the tax debt. The appropriate resolution depends on the specific circumstances of the business. Here are some common resolutions for business back tax debt:

Installment Agreement

An installment agreement allows the business to pay the tax debt in monthly installments over an extended period. This option provides more manageable payments for the business while addressing the outstanding tax liability. The terms of the installment agreement, such as the duration and payment amount, are negotiated with the tax authorities.

Offer in Compromise (OIC)

An offer in compromise is a settlement option where the business can negotiate to pay a reduced amount to settle the tax debt. To qualify for an OIC, the business needs to demonstrate an inability to pay the full tax debt or prove that paying the full amount would cause undue financial hardship. The business must provide detailed financial information and supporting documentation to support the offer.

Penalty Abatement

In some cases, businesses may be eligible for penalty abatement, where the tax authorities forgive or reduce the penalties associated with the tax debt. Penalties can accumulate over time and significantly increase the overall tax liability. By demonstrating reasonable cause or showing that there were extenuating circumstances, the business can request the elimination or reduction of penalties.

Currently Not Collectible (CNC) Status

If the business is experiencing financial hardship and cannot afford to make payments on the tax debt, it may qualify for currently not collectible status. This status temporarily suspends collection efforts by the tax authorities, giving the business time to improve its financial situation. However, interest and penalties may continue to accrue during this period.

Legal Entity Restructuring

In certain situations, restructuring the business’s legal entity, such as converting from a corporation to an LLC, may help resolve tax debt issues. This approach involves legal and financial considerations and should be pursued with the guidance of a qualified tax professional.

Why Is It Best To Enlist The Help Of A Professional?

Enlisting the help of a professional can provide several advantages over dealing with tax debt alone. Here are some reasons why seeking assistance can be beneficial:

  • Expertise and Knowledge: Tax professionals have extensive knowledge of tax laws, regulations, and procedures. They are well-versed in handling tax issues and have experience dealing with various tax agencies. Their expertise can help navigate complex tax matters and ensure the best possible outcome.
  • Reduced Stress and Burden: Dealing with tax debt can be overwhelming and stressful. It involves understanding complicated tax codes, communicating with tax authorities, gathering documentation, and meeting deadlines. By hiring a professional, you can offload these responsibilities and reduce the burden on yourself. The company will handle most of the work, allowing you to focus on other aspects of your life.
  • Tailored Solutions: Each tax debt situation is unique, and a professional can provide customized solutions based on your specific circumstances. They can analyze your financial situation, negotiate with tax authorities on your behalf, and develop a strategy to resolve your tax debt efficiently. This personalized approach increases the likelihood of achieving a favorable resolution.
  • Maximizing Tax Relief Options: Tax professionals are well-versed in identifying available tax relief options and programs that can help reduce or eliminate your tax debt. They understand the eligibility criteria, application processes, and potential benefits associated with offers in compromise, installment agreements, penalty abatements, and other relief programs. By working with a professional, you can explore and take advantage of all possible avenues for resolving your tax debt.
  • Representation in Audits and Appeals: If you are facing a tax audit or need to appeal a tax decision, having professional representation can be invaluable. They can communicate with tax authorities on your behalf, handle the audit or appeal process, and present your case effectively. Their experience and understanding of tax procedures can significantly increase your chances of a successful outcome.
  • Time and Cost Savings: Resolving tax debt issues can be time-consuming, requiring extensive research, communication, and paperwork. By seeking professional help, you save time and effort by leveraging their expertise and resources. Additionally, a tax professional can potentially save you money by helping you minimize penalties, interest, and overall tax liability through effective negotiation and resolution strategies.

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How To Seek Relief

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