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Owe Back Taxes? You Need a Plan

With April 15th almost here, many of us  are busy preparing our own tax returns. Others are looking for that missing mortgage interest statement that somehow got lost between our shoebox full of W-2s, 1099s and the accountant’s office. Still others, though, are simply wondering how they’re going to pay the taxes due or, even worse, how to deal with multiple years of back taxes, interest and penalties that just seem to grow bigger as the years go by.

If you’re in that last category, take solace in the fact that you’re not alone. In May, 2014, USA Today obtained data from the Internal Revenue Service showing that federal employees owe Uncle Sam over $3.3 billion in back taxes, or an average of almost $10,400.00 each.

The IRS Holds ALMOST All the Cards

The IRS has a number of weapons in its arsenal to nudge us toward greater compliance with the tax code. Chief among them are:

– tax audits, in which an IRS agent examines your tax returns and allow it to assess additional taxes, interest and penalties, often as a result of under-reporting of income, overstatements of deductions, under withholding of taxes or other discrepancies.

– filing a notice of intent to levy and seizing taxpayer assets, such as a bank account.

– filing a wage garnishment and seizing a portion of a taxpayer’s wages in order to pay down back tax obligations; and

– filing a notice of tax lien. Tax liens give the IRS a legal claim to taxpayer property, such as real estate, as security for payment of a tax debt.

Tax levies and wage garnishments have an immediate impact on taxpayers: bank accounts are frozen, checks may be bounced and bank fees incurred, paychecks are abruptly decreased and there’s an overall impact on a taxpayer’s day-to-day living.

Tax liens, though, are different: they can have a long term impact on taxpayers in at least four different ways: Tax liens attach to a taxpayer’s assets for the life of the lien, usually ten years, but longer in some instances. Liens also negatively affect credit scores and therefore a taxpayer’s ability to borrow. Liens affect businesses too, by attaching to business assets, including accounts receivable, over the life of the lien and may end existing borrowing relationships. Lastly, liens affect a taxpayer’s ability to discharge debt in bankruptcy, since the tax debt and filed Notice of Federal Tax Lien may continue to exist even after a bankruptcy is complete.

Owe Back Taxes? You Need a Plan

If you owe the IRS and can’t pay in full, the worst thing to do is to do nothing. Doing nothing just means that the amount of interest and penalties owed will continue to accumulate and make it that much harder to address in the future. Instead, taxpayers finding themselves owing back taxes should look into one of several options available to them, including setting up an installment payment plan, negotiating with the IRS to withdraw a filed tax lien, filing bankruptcy or, in some instances, making an offer in compromise to pay less than 100% of the amount due.

If you need help with back taxes, contact an experienced New York tax attorney at Mackay, Caswell & Callahan, P.C. today. With over 30 years’ of tax experience and offices throughout New York State, we can offer experienced tax help.