In 2019, the Internal Revenue Service reported 44 million returns were filed with “additional” taxes due, up from 40 million in 2018. With 250 million tax returns of all types filed, that represents roughly 18% of all returns. Individual and business returns accounted for 191 million of the total. Unfortunately, the IRS does not break down the data by state, but you can bet that Texas has its share.
If you owe back taxes and live in or around Houston and Harris County, contact me at the Law Office of Joseph Onwuteaka, P.C. In my three decades of practicing law, I have helped thousands face various legal issues and fought side by side with them to achieve the best possible outcome. I will work diligently with you to help you resolve any back tax issues you face.
What the IRS calls “additional taxes due” on its charts is another term for taxes not paid either partially or in full on time. If you fail to file your return entirely, there may be not only “additional taxes due,” but also a substantial penalty for not filing.
It is important to settle your delinquent tax obligations to the IRS as quickly as possible for a variety of reasons.
For one, late fees and interest penalties will accumulate almost daily as you ignore your overdue obligations. For another, if you fail to file a return and you’re owed a refund from withholding or estimated taxes, the refund will not be paid until you file the past due return. If you fail to file the return within three years, the refund will be forfeited.
If you’re self-employed and fail to file a return, any income you earned will not be reported to the Social Security Administration (SSA), and you will not receive credit for retirement or disability benefits for that year.
Finally, you could be denied mortgages and other loans if you cannot submit a current tax return.
The failure-to-file penalty — 5% of taxes per month until it reaches 25% — is harsher than the failure-to-pay penalty, which is 0.005% (one-half of one percent) per month until paid. Interest is also compounded daily based on the federal short-term interest rate plus 3%. Since the current short-term rate is 0%, the interest charged is 3%. Even if you can’t pay your taxes, you should file your return on time to avoid the more onerous penalty.
There can also be a penalty for failure to pay estimated taxes.
If you file a frivolous return, which the IRS defines as one that "does not include enough information to figure the correct tax or that contains information clearly showing that the tax you reported is substantially incorrect," you can be levied a $5,000 fine, which doubles if it’s a joint return. Bouncing a check to the IRS earns a 2%t penalty, or $25, whichever is more.
The statute of limitations on collecting back taxes is generally 10 years but can be extended if you file for bankruptcy. The IRS won’t often sit by idly during those 10 years, however. It can place a lien, levy, or garnishment on a taxpayer’s home, motor vehicle, wages, or other property that they own in order to procure the payment of a debt resulting from back taxes. A levy is a legal means to seize your property and sell it. A lien is a legal claim against your property to settle a debt, which would be paid during a sale of the asset.
The simplest way to settle with the IRS over delinquent taxes is to write a check that includes any interest and penalties owed, but if that were so easy, most taxpayers probably wouldn’t find themselves owing back taxes in the first place.
Probably the most common and easily accessible way to pay off back taxes is through an installment plan arranged through the IRS, but you must owe $50,000 or less. Interest continues to accrue daily, and the entire balance must be paid within six years.
The offer in compromise is often touted on TV commercials, promising you that you can get away with “pennies on the dollar.” This IRS program does indeed offer a way to lower your total amount due, but it is hard to come by. The taxpayer must have filed all required tax returns, made all estimated tax payments for the current year, and then must make an initial payment, kind of like a down payment, to begin the application process.
Acceptance of the offer in compromise ultimately hinges on proving you do not have the resources to pay the full tax bill due. Though the process is arduous, the approval rate has risen from 25% in 2010 to 41% in the latest reporting period, when 24,000 out of roughly 35,000 applications were approved. It may not be “pennies on the dollar,” but it does represent a reduction in liability.
Going up against the IRS alone is not a wise choice unless the amount owed is so small, or manageable, that you can set up an installment plan on your own. In any event, it’s always advisable to seek the counsel and guidance of an experienced tax attorney whenever the IRS comes calling.
An experienced tax attorney can also help you protect yourself if you know the IRS is considering placing a levy on your property. You may be able to set up a trust or limited family partnership, or even transfer the property to a family member. Legal guidance is also absolutely essential to navigate the offer in the compromise process.
You don’t have to worry about facing the IRS about your back taxes by yourself. If you’re in or around Houston and Harris County Texas, call me at the Law Office of Joseph Onwuteaka, P.C. I will consult with you, discuss your situation, and help you come up with the best strategy to settle your back taxes.