Overview of IL Tax-Related Penalties and Penalty Abatement

If you don't pay state taxes, the Illinois Department of Revenue (DOR) can garnish your wages, seize your assets, or shut down your business. But before taking these actions, the state will start by assessing tax penalties. In this article, we will discuss two common tax penalties associated with delinquent taxpayers. There are two tax penalties taxpayers should know about along with how interest accrues on any unpaid balance.

Late-Filing (or Nonfiling) Penalty

The DOR will assess a penalty to individual taxpayers who do not file on time or fail to file. The IL DOR refers to this penalty as the Late-filing (or Nonfiling) Penalty. If a taxpayer timely files a tax return but DOR cannot process it and the taxpayer does not correct it within 30 days (for tax returns due after December 31st, 1995) from the date the state notifies them, taxpayers can also face a late-filing penalty.

The DOR assesses the tax penalty when the taxpayer fails to file by the due date, including extensions. Specifically, the tax penalty is the smaller of $250 or 2% of the tax required to be shown due on the return and lowered by timely payments or credits. The former applies to tax returns due January 1st, 2005 to current. If the taxpayer does not file a return “within 30 days after receiving a notice of nonfiling” the DOR will assess an “additional penalty equal to the greater of $250 or 2% of the tax shown due on the return without regard to timely payments.” The additional penalty will not exceed $5,000. The DOR will assess the tax penalty even if the taxpayer has no balance.

Late-Payment Penalty

If a taxpayer fails to pay taxes owed on time, the IL DOR will assess a Late-Payment Penalty. The DOR will assess this penalty if the taxpayer does not pay their taxes by the due date of the tax payment or the original due date of the return without regard to extensions.  The DOR bases the penalty on the number of days the tax required to be shown due on the return is late. If the payment is 30 days late or less, the penalty is 2%. If the payment is greater than 30 days late, then the tax penalty is 10%.

The penalty is 15% on any amount the taxpayer doesn’t pay after the “initiation of an audit or investigation” of the taxpayer’s liability. It is 20% of any amount the taxpayer does not pay within “30 days after the issuance of an audit-prepared amended return or Form IL-870, Waiver of Restrictions at the conclusion of the audit or investigation.”

If the taxpayer incurs a penalty for underpayment of estimated taxes or accelerated tax, the “tax amount that this penalty is assessed on is subtracted from the total tax.” For example, say that you owe $10,000 in sales tax but you pay $6000, the penalty is only based on the $4000 that wasn't paid. The penalties for unpaid sales tax can be extremely high — so you should always request abatement if possible.

Interest

Taxpayers who fail to pay state taxes owed to the State of Illinois will incur interest charges. The DOR assesses interest the day after the taxpayer’s payment due date until the date the taxpayer pays the tax.  Interest is simple interest using a daily rate that the state updates twice a year (1/1 and 7/1). The state beginning January 1st, 2014, uses the federal underpayment rate. Before the previous date, the IL DOR assessed interest differently. Moreover, after January 1st, 2001, the DOR no longer charges interest on penalties. The current interest rate or “underpayment rate” for the period for which delinquent tax goes unpaid accrues at a rate of 8% for individuals (4/15/2024).

As one can see, the tax penalties and interest can add up. Therefore, even if a taxpayer cannot pay the taxes owed, they should still file. Filing a tax return and make a partial payment will lessen the impact of penalties.

Penalty Abatement

Illinois allows taxpayers to appeal penalty assessments by filing a petition to the Board of Appeals (BOA). Taxpayers can find the petition form for filing a penalty appeal request with the Board here. Taxpayers can petition the BOA once their liability has become final. In other words, “all administrative hearings, Tax Tribunal decisions, and court proceedings to review the assessment have ended or the time for taking such action has expired.”

The BOA will only consider penalty abatement for reasonable cause. IL makes determinations of reasonable cause on a case-by-case basis.

Examples Provided of Reasonable Cause

The DOR provides examples of reasonable cause for purposes of abating tax penalties:

• “If a liability results from amendments made by the DOR to regulations or formal administrative policies or positions after which the liability was computed was filed.”
• Reasonable cause may exist based on severe illness of the taxpayer (or the tax preparer), incapacity, or death. It may also exist if a death or serious illness to an immediate family member caused a late filing or payment. “In the case of an estate, trust, or corporation, the death, incapacity, or serious illness happened to the individual with sole authority to file the return (not the individual preparing the return) or make the deposit/payment, or a member of such individual’s immediate family.”
• “An unavoidable absence of a taxpayer (or tax preparer) due to circumstances unforeseeable by a reasonable person may also constitute reasonable cause for
  purposes of abatement of the penalty.” With an estate, corporation, or trust, etc., “the absence is due to the individual having sole authority to file the return (not individual preparing it) or make the deposit/payment.”

More Examples of Reasonable Cause

• The taxpayer was unable to obtain records necessary in a timely fashion for reasons beyond the control of the taxpayer.
• Factors beyond the taxpayer’s control. For example, “destruction by fire, other casualty or civil disturbance, of the taxpayer residence or place of business records.”
• “Taxpayer mailed the return or payment to the Department in time to reach the Department on or before the due date, given the normal handling of the mail. However, through no fault of the taxpayer, the return or payment was not delivered within the prescribed time period. This fact situation would constitute reasonable cause for abatement of the penalty.”
• If the taxpayer makes honest mistakes. For example, such as mailing a check to the wrong tax agency.
• An Illinois appellate court decision, a U.S. appellate court decision, or an appellate court decision from another state (provided that the appellate court case in the other state is based upon substantially similar statutory or regulatory law) which supports the taxpayer’s position will ordinarily provide a basis for a reasonable cause determination.
• The IL DOR provided erroneous information or it delayed a process under its control.
• “Taxes withheld by an employer for the wrong state.”
• “Embezzlement or employee fraud not reasonably within the knowledge of the taxpayer.”

Relevant Factors the BOA Considers With Penalty Abatement

The DOR provides that the BOA should consider the following pertinent factors of determining the existence of reasonable cause:

• “Could the taxpayer’s federal filing status have caused confusion about his or her Illinois filing requirements?” Under Illinois law, many taxpayers without an IRS filing requirement may need to file with the DOR.
• “Does the taxpayer’s reason address the penalty assessed?” For example, say DOR assessed the taxpayer a late payment and late filing penalty for the same return. “The taxpayer’s explanation of the failure to file and pay may apply to one penalty, but not the other.”
• “Does the length of time between the reason cited and the actual violation support abatement? If the taxpayer cites a specific event or set of events (e.g., illness, unexpected absence, or natural disaster) or set of events that led to the imposition of the penalty, the Department will determine whether those events are directly related to the return or payment under review.”
• Could the taxpayer have reasonably anticipated the event cited? Was the event one the taxpayer should have anticipated? For example, a vacation or scheduled absence. “[O]r was it unexpected, unavoidable, or otherwise unplanned (e.g., an emergency or disaster).”
• Did the taxpayer exercise prudence and ordinary business care?  “In the absence of new or unusual circumstances, most filing and payment requirements are common knowledge or are readily available to most taxpayers. If the taxpayer did all that could be reasonably expected of him or her and was still unable to file or pay on time, reasonable cause may be present.”

The procedures and filing information for submitting a petition with the BOA seeking penalty abatement relief, work in the same manner as those for an Offer-in-Compromise.

Request Tax Help

When in doubt, reach out to a licensed professional with experience in working with Illinois state to understand options with this link or start your search below.

Disclaimer: The content on this website is for educational purposes only and does not serve as legal or tax advice. Therefore, for specific help regarding your tax situation, contact a licensed tax professional or tax attorney.

Review of Illinois State Tax Installment Payment Plan

In similarity to the IRS, taxpayers who cannot pay off their tax balance in one payment may look to set up a tax payment plan with the State of Illinois Department of Revenue (DOR). Illinois refers to installment agreements or tax payment plans as “Installment Payment Plans.” An Installment Payment Plan is an arrangement where the taxpayer comes to an agreement with the Illinois Department of Revenue (DOR) to make monthly scheduled payments until the taxpayer pays off their taxes.

The DOR will accept Installment Payment Plans from taxpayers who have delinquent tax liabilities and cannot pay in full. Generally, taxpayers who cannot pay in full have a financial hardship situation that prevents them from paying off their balance. If you know you can't pay in full, be proactive and reach out the IL DOR before the agency starts taking collection actions against you. Setting up a payment plan can help you avoid harsh consequences such as bank account levies, wage garnishments, or asset seizures. 

Ease of Payment Plan Dependent On Taxes Owed

Usually, Installment Payment Plans will be automatically accepted if the total delinquent taxes is $5,000 or less. If the taxpayer owes more than $5,000, they will have to submit financial information detailing their assets, liabilities, and current and future income potential.

The taxpayer’s financial situation will be used to determine the proper monthly payment figure. Usually, the DOR will expect the taxpayer to pay off the delinquent taxes within 12 months, but the state may give a longer duration (up to 24 months) with financial justification. However, exceptions may happen for certain financial circumstances with a manager’s approval. Before applying for an Installment Payment Plan, the taxpayer must be current with all tax return filings through the current date.

How To Apply for An IL Installment Payment Plan

Taxpayers can find the CPP-1, Installment Payment Plan Request form here for applying for an Installment Payment Plan — you can use one form to apply for payments on multiple types of taxes, including sales tax. As a practical tip, taxpayers should offer a large down payment with their request if possible. Individual taxpayers who need to submit financial information with their Installment Payment Plan request need to fill out form EG-13-I the Financial and Other Information Statement for Individuals.  Businesses need to fill out form EG-13-B or the Financial and Other Information Statement for Businesses. Taxpayers should fax the forms to 217-785-2635 or mail the forms to:

Installment Contract Unit
Illinois Department of Revenue
PO Box 19035
Springfield, Illinois 62794-9035

The DOR provides minimal information regarding how they determine if taxpayers qualify for an Installment Payment Plan. After the taxpayer has submitted their Installment Payment Plan request, the DOR will conduct a review. If they determine that the taxpayer qualifies for an Installment Payment Plan, they will mail an approval letter to the taxpayer which outlines the conditions of the plan. Usually, the DOR will require the taxpayer to make payments via automatic withdrawal (ACH) from a taxpayer’s savings or checking account. If the DOR determines you can pay off your entire tax balance, they will require the taxpayer to do so and deny their payment plan request.

How Taxpayers Can Make Their First Payment or Extra Payments

If the IL DOR approves a taxpayer for an installment payment plan, they can make their first payment or extra payments in a variety of ways using:

• MyTax Illinois – Taxpayers can find this at mytax.illinois.gov and can use the system to make electronic payments
• “Pay By Phone” – Taxpayers can call 1-866-490-2061. They will need their taxpayer ID, the routing number for their bank, and their bank account number.
• Mail – Taxpayers can make a payment by mailing their tax payment to the address listed above.
• Credit Card – Taxpayers can only use this payment method for individual income taxes owed. Although taxpayers can make payments by credit card, credit card service providers will charge a convenience fee. To make a payment using this method, taxpayers can visit “MyTax Illinois” webpage. Alternatively, they can also call 1-866-490-2061 and select the credit card option. Therefore, taxpayers can avoid extra fees by submitting a payment without a credit card.

Other Details Taxpayers Should Know

With an IL tax installment payment plan, interest, penalties, and fees continue to accrue. Therefore, the faster taxpayers pay off their tax liability with the state, the less interest and penalties will accrue. Moreover, the DOR can file a tax lien at any time. Generally, the IL DOR will do so if it feels you may not honor your end of the agreement. If a taxpayer cannot afford the monthly payments with an Installment Payment Plan, they should look to apply for an Offer In Compromise.

Working With a Tax Professional

When in doubt, taxpayers should reach out to a tax professional that can handle Illinois state tax issues. Before hiring anyone, taxpayers should request a free consultation to understand possible tax options and associated fees. You can also start your search below of top-rated tax professionals that help with your particular agency you have issues with.

Disclaimer: The content on this website is for educational purposes only and does not serve as legal or tax advice. For specific help regarding your tax situation, contact a licensed tax professional.

Delinquent Georgia Tax Penalties & Penalty Abatement

Concerning unpaid GA income taxes, Georgia state assesses two penalties that a taxpayer should know. The first is the Late Filing penalty. The state will assess the Late Filing penalty. The state assesses this penalty when a taxpayer does not file a tax return by the due date, including extensions.  The Late Filing penalty is 5% of the tax due. Moreover, the DOR will assess an additional 5% for each extra month the return is late, up to a maximum of 25% of the tax due.

The second penalty is the Late Payment penalty. The Late Payment penalty is 0.5% of the unpaid tax due and an additional 0.5% of the outstanding tax for each extra month. The maximum is up to a maximum of 25% of the tax due.

The combined total of both penalties above cannot exceed 25% of the tax due on the return due date.

Additionally, GA applies interest for each month (or part of a month) that a delinquent tax goes unpaid. The annual rate equal to the Federal Reserve prime rate plus 3% until the taxpayer pays the taxes owed. Interest for months before July 1st, 2016 accrues at a rate of 12% annually or 1% per month.

Consequently, penalties and interest taxpayers do not file or pay when required.  Therefore, a taxpayer should always file their tax return regardless of whether they can pay or pay in full. Moreover, a taxpayer should make a partial payment (if they cannot pay in full). It can help the taxpayer avoid or lessen the impact of the penalties mentioned above and interest.

GA State Interest Abatement

In certain situations, the Commissioner of Georgia’s Department of Revenue may waive the collection of interest charges. GA may waive interest charges in whole or in part on any unpaid taxes. However, generally, this only occurs if he or she determines the delay in the payment of taxes was due to the inaction or action of the DOR. The taxpayer needs to illustrate that the DOR’s actions caused the interest to accrue. Alternatively, the taxpayer can show the DOR failed to act in a manner that caused interest to accrue.

GA State Penalty Abatement

The DOR may consider a full or partial penalty abatement if reasonable cause exists. More specifically, the default giving rise to the penalty must be due to reasonable cause and not due to gross or willful neglect or disregard of the law or regulations or instructions issued according to the law. The DOR states that reasonable cause happens from circumstances beyond the taxpayer’s control.

The DOR provides the following list of possible circumstances that it may consider reasonable cause concerning penalty waivers:

• The taxpayer had a delay because of erroneous information given to the taxpayer by an employee of the DOR.
• The taxpayer had a delay because of the death or serious illness of the person or an immediate family member of that person who is responsible for preparing the return or making payment to the DOR.
• The unavoidable absence of the taxpayer caused a delay.
• Fire or another casualty of the taxpayer’s place of business/residence or business/personal records caused the delay.
• Delay was caused by reliance on competent tax advisors where the advisor acted under clear mistake or misunderstanding of the law
• Taxpayer encountered embezzlement or some other criminal act by the person responsible for filing or paying the taxes which caused the delay.
• Concerning the late payment penalty, DOR will consider whether the taxpayer paid more than 90% of an income tax liability by the due date of the return.
• Whether the taxpayer has a good filing history may be considered along with other factors.

Realize that the reasons mentioned above are not the only circumstances in which the DOR will consider penalty abatement. Moreover, in many cases, the DOR will request documentation to substantiate the details. Lastly, if your business seeks penalty abatement for sales tax penalties, read the documentation provided by DOR here.

How To Request GA State Tax Penalty Abatement

To request penalty abatement, the taxpayer may either file Form TSD-3 – Request for Penalty Waiver, or log in to their Georgia Tax Center account and file the request online. While the DOR provides the normal circumstances listed above, the DOR will consider each case on its own merits based on either the information and/or documentation supplied by the taxpayer.

If you need assistance to pursue penalty abatement, reach out to a tax professional that has experience working with the Georgia Department of Revenue.  Or start your search below and select the applicable tax agencies you are having issues with.

Disclaimer: The content on this website is for educational purposes only and does not serve as legal or tax advice. For specific advice regarding your tax situation, contact a licensed tax professional or tax attorney.

What Happens If You Don't File Taxes Yearly?

If you haven’t filed a tax return for several years, it could lead to some severe consequences and financial losses. You could lose your chance to claim your tax refund or end up owing the IRS thousands in back taxes, penalties, and interest. Fortunately, you can still file past due tax returns and may be able to resolve some of these issues. To help you out, this guide explains what happens when you don't file your taxes, and it breaks it down into a year-by-year timeline. Looking for a local pro to help with unfiled taxes? Check these results for local pros that help with years of unfiled tax returns.

Overview of Basic IRS Filing Requirements

You are only required to file a tax return if you meet specific requirements in a given tax year. The most common reason people need to file is when they earn over the standard deduction, which is also referred to as the income filing threshold. For the 2023 tax year (filing in 2024), these amounts were as follows:

• $13,850 for single filers or married taxpayers filing separate returns that are younger than 65
• $15,700 for single filers or married taxpayers filing separate returns that are older than 65.
• $20,800 for head of household filers younger than 65, and $22,650 if 65 or older. 
• $$27,700 for married couples where both are younger than 65, $29,200 if only one is older than 65, and $30,700 if both are older than 65.
• $5 for all ages married filling separately 
• $27,700 for a qualifying widow(er) younger than 65 with a dependent child, otherwise it is $29,200 if older than 65.

These amounts have fluctuated over the years. They nearly doubled in 2018 with the passage of the Tax Cuts and Jobs Act (TCJA), and every year, they increase with inflation. If you're dealing with years of unfiled returns, you’ll need to find the income filing threshold for the appropriate tax year to determine if you had a filing requirement that year. 

In some cases, you may still need to file a return even when you earned less than the filing threshold amount. Some other reasons you may need (or want) to file include the following:

1. You had net self-employment earnings of $400 or more — This refers to your net self-employment income which is your self-employment income minus expenses. For instance, if you earned $1000 in self-employment income and had $700 in business expenses, your net self-employment income is just $300 so it doesn't trigger a filing requirement. 
2. You claimed the advanced premium tax credits throughout the year — This credit offsets the cost of health insurance, but it's based on your adjusted gross income. To ensure you don't owe extra money or deserve a larger credit, you need to file a tax return. 
3. You qualify to receive a refundable tax credit — Refundable credits put money in your pocket. They include the earned income tax credit, the child tax credit, and the child care credit. You must file a tax return to get refundable credits. 
4. You are owed a tax refund because you had taxes withheld from your paycheck or you made estimated tax payments — If you paid more tax through the year than you owe, you should file a return to claim a refund. This can include estimated payments made directly to the government or taxes withheld from your paycheck.
5. You are a dependent with more than $1,100 in unearned income — The rules for dependents vary if you are over 65, blind, or married.
6. You owe special taxes such as the alternative minimum tax or a tax on a qualified retirement plan. 
7. You have tips or wages that your employer didn't withhold Social Security or Medicare tax from.

You must file your tax return by the deadline set by the IRS each year. This is usually April 15th, but in special cases such as during the COVID pandemic or for areas experiencing natural disasters, the IRS extends the deadline. If the 15th is on a weekend or holiday, the due date moves to the next business day.

Unfiled Taxes Last Year: Missed the IRS Tax Return Filing Deadline

The repercussions for failing to file a tax return depend on whether you have to pay taxes or are due a refund. You also have the option to request a six-month tax-filing extension if you’re going to miss the deadline.

If You Are Due a Refund

Good news—you won’t owe any penalties if you are due a refund on your tax return. You should still file as soon as possible because you can’t receive your refund check unless you file. If you don’t file within three years of the return’s due date, the IRS will keep your refund money forever.

It’s possible that the IRS could think you owe taxes for the year, especially if you are claiming many deductions. The IRS will receive your W-2 or 1099 from your employer(s). However, the IRS won’t know about your itemized deductions or business expense deductions until you file, so they could come after you if they think you should have sent them a check for taxes owed.

You can prevent this issue by filing your return as soon as possible. You can also get an automatic six-month filing extension by submitting Form 4868, as long as you file on or before the due date of the tax filing deadline.

If You Owe IRS Taxes

You could owe both the failure-to-file (FTF) and failure-to-pay (FTP) penalties as soon as your return is a single day late. The FTF penalty is 5% of the tax debt owed per month, and the FTP penalty is 0.5% of the taxes owed. However, there are ways to avoid or minimize these penalties.

You can postpone the assessment of the FTF penalty by requesting a six-month filing extension. The extension will give you until around October 15th to file your return. After that, the IRS will assess the FTF penalty on your tax debt if you still haven’t filed.

Even if you request an extension, you’ll still owe the FTP penalty unless you’ve paid at least 90% of your tax liability for the year. You can estimate this amount and send the IRS some money when you submit your filing extension to minimize the FTP penalty.

The IRS will continue to assess these penalties—along with interest—each month that your return is past due and your tax bill is unpaid. Eventually, the IRS may become more aggressive if you don’t respond to their requests for payment of your tax liability.

Haven’t Filed Tax Returns in 2 Years

If You Are Due a Refund

The clock is ticking on your chance to claim your refund. You should file your tax returns for both tax years to make sure the IRS doesn’t get to keep your tax refund check.

If the IRS thinks you may owe for these tax years, you may have received one or more notices from the IRS by now. Once the IRS assesses tax against you, they can begin seeking collection, which could eventually result in a levy of your bank account or garnishment of your wages.

If You Owe Federal Income Tax

You may be receiving IRS notices about your tax liability in the mail, and penalties and interest will continue to add onto your bill. The IRS may also decide to file a Substitute for Return (SFR) on your behalf.

The SFR usually claims you owe more in taxes than you should. That’s because the IRS is using your W-2 or 1099 to determine your income, but they have no way to calculate your potential deductions or credits. So you could miss out on some significant tax breaks. In fact, the SFR only provides the taxpayer with the standard deduction and one exemption.

The statute of limitations for the IRS to collect taxes—which is generally ten years—also doesn’t begin until you file your return. That means the IRS has more time to seize your assets for unpaid taxes.

Even if you can’t afford to pay off your full tax bill right now, you should file your delinquent returns right away.

Haven’t Filed a Tax Return in 3 Years

If You Are Due a Refund

At three years, this is your last chance to claim your tax refund money! Remember—once it’s been three years from the due date of the tax return, you no longer have the right to claim your tax refund. Not only can’t you claim the money, but the IRS also won’t credit your account for the refund amount or apply it to a future return.

The IRS may have sent you notices informing you that they have not received your tax return. If they think you may owe taxes for one or more tax years, they could assess tax on your account if you don’t respond to these notices. After that, the IRS sends your account to collections, and your assets, income, or credit rating could be at risk.

If You Owe Federal Income Tax

You could face any or all of the following consequences if you have an unpaid tax liability:

1. Late payment penalties, failure to file penalties, and interest could substantially increase the amount you owe to the IRS.
2. The IRS can file an SFR on your behalf that doesn’t give you the deductions and credits you’re entitled to receive.
3. When the IRS files the SFR, they assess tax against you, and the collections process begins. You could receive an intent to levy notice informing you that the IRS may seize assets. An intent to levy notice means they can take funds from your bank account or a portion of your wages.
4. A federal tax lien can be filed against your property, making it difficult to sell, refinance, or borrow against your assets.

Your tax problems can start to spiral out of control at this point because the amount you owe is growing and the IRS is proceeding further along in the collections process. You may feel as though your trapped and don’t know how to regain control of your financial situation.

Haven’t Filed Taxes in 5 Years

If You Are Due a Refund

It’s too late to claim your refund for returns due more than three years ago. However, you can still claim your refund for any returns from the past three years. Don’t let the IRS keep any more of your money!

If You Owe Federal Income Tax

There’s a good chance that the IRS has noticed that you have unfiled returns. An SFR may have been filed for several tax years, the tax has been assessed, and your account is in collections. A Notice of Federal Tax Lien may have been filed to notify other credits of the IRS claim against your property.

You probably owe the IRS more money than you can pay back at once. There are payment plan options as well as tax settlement options you should consider. The IRS requires taxpayers who use these programs to file all delinquent tax returns, and you may need assistance from a tax professional with this process.

Criminal tax prosecution isn’t typical, but it is a possibility if the IRS believes you’ve been willfully evading the tax laws. These cases can result in huge fines and even jail time.

Haven’t Filed Taxes in 10 Years

If You Are Due a Refund

You can’t seek a refund for the returns that more than three years ago. You can—and should—still file your past three years of tax returns.

If You Owe Taxes

Even if you are 10 years behind, the IRS may only require you to file the last six years to get back into compliance. However, at this level of delinquency, the IRS may have already taken steps to assess taxes against you, and if so, IRS collections have probably been hounding you for several years. You may feel that there’s no way you could even file all your back tax returns, much less pay off ten years' worth of taxes owed, plus penalties and interest.

The IRS has most likely filed a Notice of Federal Tax Lien and attempted to seize one or more of your assets. You could even have your passport revoked if your taxes owed have been certified to the State Department as seriously delinquent.

Your tax problems won’t just go away. The IRS only has ten years to collect from taxpayers, but the clock doesn’t start ticking until you file a tax return or the IRS files for you (aka SFR). If you haven’t done one of those things, the IRS has unlimited time to keep trying to collect from you.

Talk to a tax professional about your options. You will probably need help filing a decade or more of late tax returns. You can also discuss your payment options, which could include installment agreements, Offers in Compromise, Hardship, or penalty abatement.

What to Do If You've Never Filed Taxes

If you've never filed a tax return, it can be confusing and scary to think about the process. The important thing to remember is that the IRS is relatively reasonable. The agency wants to work with people and help them file tax returns. As long as you haven't committed tax fraud or evasion, you will be able to file your unfiled returns and make arrangements on your tax debt. 

If you're worried that you may have committed fraud, evasion, or another tax crime, you should contact a tax attorney. They can answer your questions and help you identify the best path for dealing with your unfiled returns. Even if you're not worried about tax crimes, you may still want to have a tax professional help you. A tax pro knows how to navigate the IRS's rules and processes. They can help you deal with your unfiled returns and get back into good standing with the IRS. 

After you contact a tax pro, the first thing you need to do is gather all of the necessary documents. This includes your W-2 forms from each employer you worked for during the year, as well as any 1099 forms if you were self-employed or had other income sources. If you plan to itemize, you should also gather information about your itemizable expenses. That includes medical bills, homeowner's insurance and interest, state and local taxes, and similar expenses. 

If you own a business, you will need all of the income documents and expense receipts for the business. Once you have all of your documentation in order, you can begin filling out your tax return. Make sure to use a tax return from the right year. These forms change from year to year.

If you're not sure where to start, there are many resources available to help you, including the IRS website and online tax preparation software. Note that you may be limited in how far back you can go with tax prep software. A tax professional can walk you through the process step-by-step and help ensure that you don't miss any important details.

Once your return is complete, all that's left to do is file it. You can do this electronically using the IRS e-file system, or you can mail it in. If you're owed a refund and it's less than three years from the original return due date, you can expect to receive it within a few weeks. If you owe tax to the IRS, you'll need to make arrangements to pay. Note that the processing time can be longer than usual when you're dealing with very old returns.

No matter what your situation is, filing your taxes for the first time can be a bit daunting — especially if you've never filed a return. But by gathering your documents, getting help if you need it, and taking care of business, you can get it done with minimal stress.

Self-Employed and Never Filed Taxes

If you're self-employed and never filed, you are going to face more paperwork than the average taxpayer. An employee simply has to enter the details from their W2 wage statement into their tax return, but a self-employed person has to enter detailed information about their business revenue and expenses. This can be daunting, especially if you're self-employed and never filed taxes before. 

Here is what you need to do to catch up on your self-employed taxes:

1. Figure out which return you need to file — The return you need to file depends on your business structure. If you're a sole proprietor, you should file a Schedule C with your individual tax return or use Schedule F if you're a farmer or fisher. Partnerships and corporations need to file a stand-alone return for the business. Then, you report your share of the business income on your personal income tax return.
2. Gather income documents — If you have a point of sale system, you can use those reports to figure out your income. Otherwise, go through your bank and payment accounts and find all your payments from clients. 
3. List your expenses — Look through your bank and credit card statements and identify all of the expenses that were for your business. Make sure to be thorough if you miss expenses, you'll have a higher than needed tax bill.

Once you've worked through these steps, you're ready to put your self-employment income on your tax return. If you have employees or were supposed to be paying sales tax, you will have additional business tax obligations. A tax pro can help you figure out what you need to do and which forms you need to file. 

What Happens If You Don't File Your Taxes for Years?

If you do not file your taxes for years, the IRS can take legal action against you. This can include filing a lien against your property or seizing your assets. In some cases, you may also be subject to criminal charges. If you are facing any of these consequences, it's important to speak with a tax attorney or another tax pro as soon as possible.

Haven't Filed Taxes Because You Can't Pay What is Owed

This is a common situation in which people fail to file because they know they can't pay what they owe. Many people don't realize that failing to file taxes when taxes are owed, actually cause significantly more penalties than if they filed and didn't pay what was owed. The IRS finds out the majority of the time when someone should have filed and did not. When they do find out, they can file a substitute for return (which generally causes more taxes owed than filing with a preparer because credits and deductions are not included). They will then assess the taxes owed plus the penalties and interest, and start the collection process. 

Taking the first steps on filing is important to get into filing compliance. Once in filing compliance there are several options available for those who owe and cannot pay. Below are some of the common methods:

• Payment Plans: There are a variety of installment agreements available to those individuals that owe taxes that allow them to pay back what is owed over time. The payment plan depends on the amount they can pay monthly as well as the amount that is owed. There are different filing requirements based on the tax debt level. While interest is still charged with payment plans, the penalties are significantly reduced when taxes are filed. Some common forms of payment plans are below:
  • Online Payment Agreement (OPA): Straightforward filing process if you owe under 50K in taxes or owe under 100K and can pay in 180 days or less.
  • Guaranteed Installment Agreement: Owe less than 10K and can pay off taxes within 3 years or before the statute of limitations expires.
  • Direct Debit Installment Agreement: Payments are made through direct debit from your bank account. The IRS requires direct debit for businesses that owe over $10,000 and individuals with a history of defaulting on payment plans.
  • Partial Payment Installment Agreement: You cannot meet the requirements to pay the required monthly payment amount on the other installment agreements because of your financial situation. This allows you to pay less than the normally required amount. This generally requires extensive financial details to prove. Many times, the full balance is not paid off before the statute of limitations expires, and the remainder is forgiven. 
• Offer in Compromise: This is a less common form of resolution. If a taxpayer can prove they don't have the financial means to pay the taxes owed, and if they did, it would cause financial hardship. There also needs to be an unlikely situation where the taxpayer's financial situation will improve enough in the future for them to pay. 
• Currently Not Collectible: A situation similar to an offer in compromise. The taxpayer must prove to the IRS that if they were to collect the taxes, it would cause economic hardship. In this case, the taxes are still owed to the IRS, but if the taxpayer's situation does not improve, then they may not be obligated to pay as the statute of limitations on the debt would expire. 
• Penalty Abatement: While this isn't a resolution method, it is a method to possibly reduce the penalties that have been charged. If there is a valid reason for failing to file, the IRS may consider removing all or part of the tax penalties assessed. 

Notices You May Receive for Unfiled Tax Returns

The IRS sends a variety of tax notices related to unfiled tax returns. Below are the common notices and what they mean:

• Form 15103: This is Form 1040 Return Delinquency. This is sent when the IRS believes you should have filed a return and you didn't. This form is generally sent with Notice CP56, CP59, CP516, CP515 or CP518. They require a response based on your situation. 
• IRS Notice CP2566: This is to notify you that the IRS has still not received your Form 1040. They have gone ahead and calculated your tax, penalty, and interest based on the information reported to them by other third parties. You can either accept the assessment by signing the response form, file your return immediately, or contact the IRS if you don't think you need to file. 
• IRS Notice LT16: The IRS wants you to call them about your overdue taxes or tax return. This can related to unpaid taxes and/or unfiled tax returns. 
• IRS Notice CP3219N Notice of Deficiency: This is sent when you have had income reported from third parties, but they haven't received a tax return from you, or the tax return filed didn't include some information. Generally, the IRS has filed a substitute for return on your behalf, and tax is due based on the information they have used.

If all these notices are not responded to or action is taken to resolve, the IRS may begin serious collection activities, such as wage garnishment, bank levies, or other asset seizures. 

How Can Not Filing Taxes Impact Your Ability to Prove Income for Loans & Other Programs?

Failing to file IRS tax returns can hinder your ability to provide financial documentation when required to prove your income:

Impact on Loan Applications

• Mortgages or Refinancing a Home: Lenders require copies of your recent tax returns to allow them to verify your income. Without this information, securing a loan becomes much more difficult and can cause you to be denied.
• Personal Loans: Obtaining loans from banks and credit units requires proof of stable income. They generally use tax returns to prove justify the loan and is generally required in their approval process. 

Impacts on Renting Housing

Some landlords request to see tax returns as a part of their rental application process. They use this information to help determine your ability to pay and decrease the risk of someone who may not pay. Not having these documents can make it harder, especially if there are other applicants who can easily prove their income. 

Social Assistance Programs

For people seeking social assistance benefits, proving your financial need is required. Many agencies require proof that you are below a certain income level to provide assistance and tax returns are one of the most common methods. Without them, you could be ineligible for the support you may need.

Are There Any Free Resources to Help Me File Taxes?

If you find yourself in a situation where you haven't filed your taxes for previous years and are in need of guidance, there are several free legal options available to help you navigate this challenging process. Many communities offer access to Low-Income Taxpayer Clinics (LITCs), which provide free or low-cost legal assistance to those who qualify based on income. These clinics can help you understand your tax obligations, file back taxes, and even represent you in disputes with the IRS. Additionally, the IRS itself offers the Volunteer Income Tax Assistance (VITA) program, designed to aid individuals with moderate to low income, persons with disabilities, the elderly, and limited English speakers in filing their taxes at no cost. These services are provided by IRS-certified volunteers and can be an invaluable resource in ensuring your tax filings are accurate and submitted on time. Leveraging these free resources can alleviate the stress of dealing with unfiled taxes and help set you on the path to resolving any outstanding tax issues.

How Does the IRS Know If You Haven't Filed a Tax Return?

The IRS uses a number of methods to track down people who haven't filed their tax returns. In particular, the IRS can find out if someone hasn't filed their taxes through third-party reporting. This means that financial institutions, employers, and other entities report information to the IRS about taxpayers. 

For example, banks will report interest income earned by taxpayers to the IRS. Employers will report wages paid to employees. If you're self-employed, your clients may send a 1099-NEC to the IRS. Additionally, taxpayers who make estimated tax payments will have those payments reported to the IRS.

If the IRS sees income documents from a taxpayer who hasn't filed a return, the IRS may assume the person should have filed. Then, the agency may send a notice asking for the return to be filed. If the taxpayer doesn't respond, the IRS may take further action, including levying fines or filing liens. In some cases, the IRS may even pursue criminal charges.

Haven't Filed Taxes — Stimulus Payment

If you did not receive a stimulus payment, you may be able to claim it on your tax return. The federal government sent out three rounds of stimulus payments in 2020 and 2021. If you qualify but didn't receive the 2020 stimulus payments, you can file a 2021 tax return to claim them. Similarly, if you didn't receive but qualified for a stimulus payment in 2021, you can claim it on your 2021 tax return.

To qualify, your adjusted gross income needs to be under a certain level. A tax pro can answer your questions and help you file your returns. The credit is called the Recovery Rebate Credit. If the credit creates a refund, you have three years from the filing deadline to claim it. If the rebate credits reduce your tax bill but don't generate a refund, you have more time as explained above.

How to File Past Due Tax Returns — Get Help Now

It can take a lot of work to find the information you need to file past-due tax returns for several years. You may want to contact a tax professional for help and to make sure you don’t make any mistakes.

For more information, visit our page on how to file unfiled tax returns.

Overview of California Back Taxes: California Tax Penalties and Resolution Options (FTB)

The State of California has different tax agencies that handle the administration and collection of their taxes. These Departments are the Franchise Tax Board (FTB), the Employment Development Department (EDD), the State Board of Equalization (SBE), and the California Department of Tax and Fee Administration (CDTFA). The CDTFA began operating in 2017, when the State Board of Equalization was broken out into three entities: the State Board of Equalization, CDTFA, and the Office of Tax Appeals.

The FTB is responsible for the State Income Tax. The EDD is responsible for the State Employment Tax. Finally, the CDTFA is accountable for the State Sales and Use Tax (sales tax audits) and other Special Taxes and Fees.

California adheres to a progressive tax structure, similar to the federal system, but with its own set of brackets and rates. Taxpayers can file as Single, Married Filing Jointly, Married Filing Separately, Head of Household, or Qualifying Widow(er) with Dependent Child, each with specific implications for how back taxes are calculated and resolved.

For instance, Married Filing Jointly in California may offer some relief in terms of broader income brackets for lower tax rates, potentially reducing the overall tax liability for couples dealing with back taxes. On the other hand, opting for Married Filing Separately could lead to different tax obligations, possibly affecting the strategies for settling back taxes.

For Californians navigating back taxes, grasping these distinctions is key to developing an effective resolution strategy, whether through payment plans, Offers in Compromise, or other relief options offered by the California Franchise Tax Board (FTB).

Tax deductions also play a pivotal role in reducing taxable income, potentially lowering the overall tax liability for both businesses and individuals. California allows for many similar deductions as the federal, including those for mortgage interest, property taxes, charitable contributions, and certain business expenses. Additionally, California offers unique state-specific deductions, such as those for contributions to the California 529 College Savings Plan. Taxpayers should be mindful of the annual tax filing deadline, typically April 15th, to avoid penalties and interest on unpaid taxes. However, the California Franchise Tax Board (FTB) may extend deadlines under certain circumstances, such as natural disasters or other significant events.

What Happens if You Owe California State Taxes?

Once a tax assessment has become final, the FTB will mail a notice and demand for payment to the taxpayer. The taxpayer will have 15 days from the date on the notice to make payment in full. If the taxpayer does not pay in full or contact the FTB to make other arrangements, the FTB will begin collection actions. At this point, the FTB will start to assess penalties, interest, and collection fees. If the delinquent tax liability continues to remain unpaid, the FTB will file tax liens.

Orders to Withhold (OTW)

The FTB may also pursue involuntary collection actions, such as bank, wage, or asset levies. The FTB uses Orders to Withhold to seize money or assets from individuals and/or businesses with unpaid taxes in California. Orders to Withhold (OTW) are one-time orders, and if the FTB places an OTW on your bank account, the bank will freeze the funds for 10 days before sending them to the state. 

Continuous Orders to Withhold (COTW)

Perhaps more commonly, the FTB uses Continuous Orders to Withhold (COTW) to collect unpaid taxes from continuous payments such as rents, commissions, or scheduled installment payments from the sale of property or assets. COTWs attach to all rents, commissions, or scheduled payments, and the FTB can take 100% of the funds up to the amount due. The FTB can also attach a COTW for one year to 25% of any credits or payments due to taxpayers — typically, this applies to self-employed people. 

California State Tax Agency Contact Information:

• Individual Taxes: 800-689-4776
• Business Taxes: 888-635-0494
• General Inquiries: 800-852-5711
• Collections: 888-635-0494
• Website: https://www.ftb.ca.gov/

California law requires the taxpayer to receive specific notices before the FTB may file a Notice of State Tax Lien or before taking any involuntary collection actions. In the case of a tax lien filing, California law requires the FTB to mail notice to the taxpayer at least 30 days before the filing, stating the authority by which they are filing the lien and the procedures available to the taxpayer to prevent the tax lien filing. In the case of levies, California law only requires the FTB to provide a notice in writing at least 30 days before taking a levy action. If you have been issued a California FTB tax levy, you can view this detailed guide on removing FTB tax levies.

Earnings Withholding Order for Taxes (EWOT)

The FTB may also issue an Earnings Withholding Order for Taxes (EWOT). Similar to a wage garnishment, these orders get sent to your employer, and then, they must withhold a portion of your paycheck to send to the FTB. You may face an EWOT in the following situations:

• You haven't responded to a demand for payment. 
• You promised to pay and didn't. 
• You have a history of late tax payments or delinquent returns. 
• You didn't make a full disclosure of your financial situation as requested. 
• You have defaulted on an installment agreement. 

Usually, the FTB only tells your employer to withhold up to 25%. If the FTB wants more or if the agency wants to take wages from a non-liable spouse, they must get court approval. Note that private creditors always need court approval for wage garnishments, but the FTB doesn't need court approval to garnish 25% or less. 

You can get OTWs released if you prove that you're suffering financial hardship or that it was issued in error. If you establish financial hardship, the FTB may review your details once a month to see if anything has changed. You can get OTWs and COTWs released by paying the tax liability in full. To get an EWOT removed, you must pay in full or prove that your Social Security Number was incorrect, you didn't receive due process, the order was wrong for some other reason, or the garnishment is causing financial hardship. 

Business Suspension

The FTB may also suspend your business if you don't pay or file your taxes. If suspended, your business cannot operate, but it also can't take any other actions, including selling assets, dissolving the company, entering into contracts, or defending itself in court (or bringing lawsuits against other parties). Suspension puts you into a state of limbo where you cannot operate, but you also can't really liquidate your assets and shut down either. You have to work out a solution with the FTB to get back on track. 

Overview of Options for Those With California Back Taxes

You can pay California taxes online, through the mail, or over the phone — get instructions on how to pay CA taxes. Taxpayers who owe delinquent income taxes to the State of California and cannot pay in full have several options available. These are:

• Installment Agreement (Payment Plan),
• Offer in Compromise,
• Establish a Financial Hardship (Currently Not Collectable, “CNC”)
• Penalty Abatement
• Innocent Spouse Relief

California’s FTB offers an Installment Agreement (IA), also known as a payment plan.  An IA allows a CA taxpayer to pay the FTB over a series of monthly payments until the delinquent tax liability, including penalties, interest, and collection fees, is paid in full. An Offer in Compromise is an agreement where the taxpayer and the FTB agree to settle the delinquent tax liability, including penalties, interest, and collection fees, for less than the amount the taxpayer owes. Establishing a Financial Hardship/CNC is merely acquiring a hold on involuntary collection actions for a temporary period. A request for penalty abatement is a written request asking the FTB to waive some, or all, of the assessed tax penalties.

FTB Monthly Payment Plan for Individuals and Businesses

For Individuals:

• Compliance: Ensuring current tax compliance is crucial.
• Debt under $25,000?: If you're able to repay through monthly installments within a 5-year span, you're likely eligible for an Installment Agreement.
• Debt over $10,000 or need beyond 3 years?: Be prepared to disclose financial information.
• Setup Fee: A nominal $34 fee is required to establish the payment plan, and anticipate a tax lien as part of the process.

For Businesses:

• Filing and Payments: All tax returns must be filed, and current taxes paid.
• Higher Setup Fee: Businesses face a $50 Installment Agreement fee.
• Tax Lien: Similar to individuals, businesses should expect a lien filing.
• Financial Disclosure: Documentation of your financial situation is needed for Installment Agreement consideration.

Establishing a Financial Hardship (Currently Not Collectible)

The taxpayer may be in a situation where they cannot afford any Installment Agreement, and they do not otherwise qualify for an Offer in Compromise. In these situations, the taxpayer should request Currently not Collectible status. To apply, you must file FTB form 3561 (Financial Statement). Note that in some cases, the FTB requires taxpayers to complete this form when applying for monthly payment plans. 

If the FTB agrees, they will suspend enforced collection on the taxpayer for a specified period. A tax pro can give you guidance on how to apply for or qualify for this type of temporary relief. This relief is only a temporary fix and does nothing to reduce or resolve the delinquent tax liability. Further, penalties and interest will still accrue, and tax liens will remain filed. This option is for those taxpayers who need time to qualify for a more appropriate form of tax resolution.

Alternative Options That May Be Available

Challenge the Assessment

If the taxpayer has a proposed assessment for additional income tax due as a result of an FTB audit, they have the opportunity to protest the proposed assessment. The taxpayer can submit the protest online through MyFTB or file a written protest. The taxpayer must file the protest letter by the “protest by date” shown on the front of the proposed assessment notice. The protest process is informal and conducted by a hearing officer within the FTB. Taxpayers have the option of requesting an oral hearing, although not required. The FTB will issue a Notice of Action (NOA) informing the taxpayer as to their determination of the protest.

If the taxpayer cannot reach an agreement with the FTB audit protest office, they may appeal to the Office of Tax Appeals (OTA). The taxpayer must request an appeal within 30 days from the date on the NOA. The OTA is an administrative, judicial body that works in a formal, courtroom-type manner. While a taxpayer may represent themselves in the OTA, many may recommend hiring a licensed attorney or tax professional who has experience practicing in front of the OTA.

Bankruptcy

Bankruptcy, just like many tax resolution services, can be an expensive endeavor.  Therefore, this option is likely only practical for taxpayers who also have significant personal liability as well. Bankruptcy proceedings may discharge some state tax liabilities. Taxpayers should seek the advice of an experienced tax and bankruptcy attorney if they want to consider this option.

The California Tax Amnesty Program

The State of California has conducted numerous tax amnesty programs. Currently, this program is called the Voluntary Disclosure Program. It is open to qualified entities, shareholders, members, beneficiaries, or partners. It encourages delinquent taxpayers to become current by waiving penalties for those who file and fully pay their delinquent tax liabilities. Many delinquent business taxpayers should consider taking advantage of this program. California and the FTB have run similar programs in the past for individual taxpayers as well.

Appeal Rights

California law does not provide taxpayers with the right to appeal determinations of the FTB concerning the collection of delinquent tax liability. However, there are a couple of practical tips a taxpayer should consider in an attempt to reach a reasonable resolution.

First, do not be afraid to escalate contentious issues to a manager within the FTB. Often a fresh set of eyes and the authority and experience of a supervisor can help resolve the matter amicably.

Second, if you believe that your case manager is not following California law, or discriminating against you, file a request for assistance with the Taxpayers’ Rights Advocate Office. The Taxpayers’ Rights Advocate Office is authorized to help resolve problems or complaints that were not resolved through proper channels. Taxpayers should file FTB 914, Taxpayer Advocate Assistance Request, found at https://www.ftb.ca.gov/forms/misc/914.pdf or leverage the online form found here.

FTB Lien Releases

The FTB will release state tax liens after the delinquent tax liability, including any penalties, interest, and collection fees, has been paid in full. They can also release them through an Offer in Compromise acceptance or Penalty Abatement. 

FTB California Tax Liens and their Implications

What is a Tax Lien?

A tax lien represents the state's legal claim over your assets and remains effective for a decade. The FTB holds the authority to renew this lien if the outstanding taxes are not settled before its expiration. Being a matter of public record, a tax lien severely restricts your ability to sell or leverage assets for loans, potentially complicating employment opportunities in certain sectors due to the lien's implications.

When you fall behind on your tax obligations, the Franchise Tax Board (FTB) may attach a tax lien to both your personal and real property. This action is initiated if you neglect the FTB's attempts to communicate through letters or notices, which results in the issuance of a Notice of State Tax Lien. This lien is reported in any county where you own real estate and registered against your personal property with the California Secretary of State.

The Treasury Offset Program and Its Effects on Your Federal Tax Refund

The Treasury Offset Program (TOP) empowers the FTB to intercept your IRS tax refund, applying it towards your unpaid state taxes. While you might receive a notification, the FTB is not obligated to inform you before taking this action. This program also allows for the seizure of refunds from other states, and if you owe taxes to the federal government or another state, those entities may claim your California tax refund.

CA Wage Garnishment

Failing to pay your taxes can lead to the FTB issuing a wage garnishment order to your employer. This order details the amount you owe, including tax, interest, and penalties, and requires your employer to deduct these funds from your paycheck for remittance to the FTB. You are entitled to receive a copy of this order from your employer within ten days of its receipt, with the funds being forwarded within 15 days of the pay period's end. This garnishment remains in effect until your tax debt is fully paid.

California Statute of Limitations for Tax Liability

An important factor that a taxpayer may consider before pursuing a possible resolution pertains to the taxpayer’s legal rights under California law concerning the statute of limitation rules for the collection of delinquent tax liability.

California law prohibits the FTB from performing collection action on a delinquent tax liability that is more than 20 years from the assessment date, or commonly referred to by the FTB, the Statutory Lien Date (SLD). Under California law, the SLD is the point in time when the tax liability becomes “due and payable.” For practical purposes, and for most taxpayers, this date is the due date on the first assessment notice issued by the FTB for tax liability.

Taxpayers should be aware that certain circumstances may ‘stop the clock’ on the statute of limitations period. These circumstances are called “collection stays.” Some examples are:

• the taxpayer files bankruptcy,
• a taxpayer is in an approved installment agreement,
• the taxpayer is in a military or combat zone,
• a taxpayer is in child support collection,
• or a presidentially declared disaster or terroristic or military action suspends the FTBs ability to perform collection actions.

During these situations the time elapsed, and possibly longer, will not count towards the 20-year collection expiration date.

Help With California Tax Problems and TaxCure

Taxpayers have many tools at their disposal when dealing with delinquent income tax liabilities with the State of California. With that said, the FTB has a government-friendly statute of limitations within which to work. Additionally, the penalty, interest, and collection fees system can result in reasonable tax delinquencies ballooning into a crippling liability. Therefore, taxpayers should consult with a licensed and qualified tax professional as soon as these problems arise. An experienced tax professional can help determine which course of action is most appropriate for their situation. At TaxCure, we have a unique ranking algorithm that can help you find the best tax professional for your unique problem. All tax professionals specialize in various problems and solutions. You can start your search by using this link to filter California FTB tax professionals by your particular problem, solution, and other important factors. You can also use the form below to start your search, or navigate by professional type located in California.

• Top-Rated California Tax Professionals
• Top-Rated California Enrolled Agents
• Top-Rated California CPAs
• Top-Rated California Tax Attorneys

California State Tax Frequently Asked Questions

When should I hire a tax professional for California back taxes?

Hire a pro if you owe over $10,000, have unfiled returns, face liens, levies, or audits. TaxCure connects you with FTB-experienced pros for tailored help.

How can I challenge an FTB tax assessment?

You can protest an FTB audit or assessment by filing online through MyFTB or submitting a written protest by the deadline listed on your notice. If the issue isn’t resolved, you can appeal to the Office of Tax Appeals (OTA) within 30 days. It’s often helpful to work with an experienced tax attorney, CPA, or Enrolled Agent familiar with California tax procedures.

How does bankruptcy help with California back taxes?

Bankruptcy can sometimes wipe out older income tax debts owed to the California Franchise Tax Board, but only if specific timing rules are met and there was no fraud or tax evasion. Even when taxes aren’t fully discharged, bankruptcy can still help stop collections or give you time to restructure payments.

How can I reduce my California back tax debt?

You can reduce your California back tax debt by amending past returns to fix errors or claim missed deductions and credits. The Franchise Tax Board (FTB) also offers options such as penalty abatement and an Offer in Compromise, which may lower or settle what you owe if you meet certain qualifications. Working with a tax professional experienced in FTB cases can help you identify the best approach for your situation.

What if I can’t afford an FTB payment plan?

If an Installment Agreement is unaffordable, apply for Currently Not Collectible status with FTB Form 3561 to pause collections temporarily.

How long can the FTB pursue back taxes?

The FTB has 20 years from the assessment date to collect back taxes, paused by events like bankruptcy or payment plans. This long statute of limitations makes early resolution critical.

CA Franchise Tax Board Installment Agreement Overview

Like the IRS and many states, the California Franchise Tax Board offers taxpayers many options to pay their taxes, including the ability to pay taxes owed overtime. The state allows both individuals and businesses to request monthly payments on FTB taxes. Keep reading for an overview of how to apply and what to expect.

Key takeaways – FTB Payment Plans

• Make payments for up to 60 months
• Provide a financial statement if owe over $25,000 or need more than 60 months.
• Individuals may apply online, over the phone, or thru mail. Businesses must call to apply.

Monthly Payment Plans for FTB Back Taxes

Taxpayers can generally get up to 60 months to pay off their taxes if the following statements are true:

• The liabilities must not exceed $25,000,
• The taxpayer must be able to pay off the tax debt within 60 months (five years),
• The taxpayer must file all past-due tax returns, 
• The taxpayer must have a history of compliance with state tax regulations, and
• The taxpayer must not already be in an Installment Agreement.

If you don't meet the above criteria, you may still be able to set up a payment plan, but you will need to file FTB Form 3561. This is a financial statement, and it allows the FTB to look at your situation and decide if you should get a payment plan even though you owe over $25,000, need extra time to pay, or have a history of non-compliance.

How to Apply for a Payment Plan on FTB Taxes

Individuals can set up installment agreements on the FTB's website, by mailing an Installment Agreement Request to the FTB, or by calling the FTB (800) 689-4776. Businesses must call (888) 635-0494 to request a plan. If out of the country, call 916-845-7033 for corporate payment plans, (916) 845-7166 for LLCs, and (916) 845-7165.

Note that you cannot apply online if there is a tax warrant, bank levy, or wage garnishment already issued against you. Instead, just call the FTB or reach out to a tax pro for help.

The FTB may request financial details to confirm your eligibility – generally, the agency wants financial details if you owe over $10,000 and need more than 36 months to pay.

Benefits of FTB Installment Agreements

Setting up a payment plan with the California FTB can significantly reduce future tax penalties, reduce the chance of getting a tax lien placed, prevent tax levies, and also release tax levies. When you make a voluntary payment arrangement with the state, they agree to not enforce involuntary collections against you.

CA FTB Installment Agreement Conditions

The taxpayer must agree to the following Taxpayer Installment Agreement Conditions while in an Installment Agreement:

• Pay a $34 set-up fee that the FTB adds to the balance due
• Make monthly payments until the taxpayer pays the entire tax bill in full
• Pay by automatic withdrawal from a bank account
• Make sure to keep enough funds in the bank account to make the monthly payment
• File all future income tax returns on time
• Pay all future income taxes on time
• Adjust any W-4 and DE-4 forms so that the taxpayer will not owe taxes in the future
• Make all estimated tax payments, if required

Finally, the taxpayer will still be subject to all of the FTB’s offset programs regarding applying state tax refunds to offset current state tax liabilities, or, in some cases, to be sent to the IRS to offset federal tax liabilities.  Moreover, Installment Agreements where the taxpayer is required to confirm a financial hardship are subject to periodic review. In other words, it means that the taxpayer may be required to update financial information periodically (generally each year), and their monthly payment figure may be adjusted accordingly, depending on their current financial situation.

What Is FTB Tax Compliance?

To be considered compliant with California state tax regulations, you must do the following:

• File required state tax returns on time. 
• Pay tax debts on time and in full.

You also must follow through on requirements related to your installment plan. If you agree and then fail to do the following, the FTB will also consider you to be non-compliant:

• Making installment agreement payments as scheduled. 
• Providing financial statements if requested.
• Submitting documents related to the collection or cancellation of tax.

To get a payment plan, you must be compliant, but you must also stay compliant to keep your plan. If you fail to file taxes or make payments as required, the FTB can rescind your payment agreement and potentially suspend your business.  

FTB Acceptance Determinations

The FTB states that they make acceptance determinations based upon the taxpayer’s current ability to pay the liability and their compliance record.

If the FTB accepts the Installment Agreement request, the FTB will send a notice to the taxpayer confirming the monthly payment amount and the due date for each monthly payment.  However,  if the taxpayer fails to maintain compliance with the conditions stated above, the FTB reserves the right to terminate the Installment Agreement. Before the FTB terminates an Installment Agreement, they will send a notice to the taxpayer 30 days before termination. The FTB notice will state the reason(s) for termination and provide instructions regarding the taxpayer’s rights.

If the FTB Rejects the Installment Agreement

If the FTB rejects the Installment Agreement request, the taxpayer can file for an independent administrative review. As a result, the taxpayer needs to send the request in writing within 30 days from the date of the rejection letter. The taxpayer should mail it to:

Executive and Advocate Services MS A381
Franchise Tax Board
PO Box 157
Rancho Cordova, CA 95741

What If I Don't Get a Response?

If the FTB doesn't respond to your payment plan request within 30 days, you should call them. You can check the status of your application online if you applied online. Otherwise, the agency should send a response to phone or mail applications within 30 days.

If You Do You Not Qualify

If you do not qualify for an installment agreement, taxpayers may want to consider working with a tax professional who has experience with Franchise Tax Board tax cases. There are other options for taxpayers including offer in compromise where you settle with the FTB for less than owed.  Above all, a licensed tax professional can review their financial situation, tax situation, and determine all options available.

How to Make Monthly Payments

You may set up automatic bank drafts when you apply for the payment plan – if so, you can choose any date from the first to the 28th for your withdrawal. Or, pay online through Web Pay by bank draft or credit/debit card. You may also mail in a check or money order – make the payment to the Franchise Tax Board, write your account number on the memo line, and send it to:

STATE OF CALIFORNIA

FRANCHISE TAX BOARD,
PO BOX 942867

SACRAMENTO CA 94267-0011

The FTB encourages taxpayers to submit monthly payments while they are waiting for a response on their installment agreement request.

What If These Taxes Are Due to My Spouse or Former Spouse?

You may qualify for relief through the FTB's innocent spouse program if your spouse or former spouse incurred tax debt without your knowledge. The FTB takes several elements into account and if you qualify for relief, you generally do not have to pay your spouse's tax liability and instead are only held responsible for your portion of the bill. 

Help With California Installment Agreement and TaxCure

At TaxCure, we have a large network of tax professionals with a variety of specialties. We made it easy for taxpayers to find the best professional to help with the particular tax agency problem they are experiencing. You can view the top-rated professionals to help with a California installment agreement. Or browse top tax professionals by license type below that are located in California.

• Top-Rated California Enrolled Agents
• Top-Rated California CPAs
• Top-Rated California Attorneys

Disclaimer: This article is not legal or tax advice. This article should not be used as a substitute for the advice of a competent attorney or a licensed tax professional.

NC Tax Offer In Compromise Overview

An NC tax offer of compromise (OIC) is when the North Carolina Secretary of Revenue decides to accept a settlement for back taxes for a lesser amount than what is due when the secretary determines that it is in the best interest of the state.  Specifically, N.C  Gen. Stat. § 105-237.1 provides authority for the Secretary of Revenue to consider an OIC. Consequently, the North Carolina Offer In Compromise program allows qualifying, financially distressed taxpayers the opportunity to pay off their tax liabilities through one lump sum.  The benefits of the program include the ability for the taxpayer to settle their tax liability in full.  The goal of the program is to resolve a tax liability in the best interest of the taxpayer and the State.

Qualifying Circumstances for an NC Offer In Compromise

To qualify for an Offer In Compromise, the Secretary of Revenue determines the OIC is in the best interest of the state and makes “one or more or the following findings:”

• Under the laws and facts, there is reasonable doubt as to the amount of the liability of the taxpayer
• The taxpayer is insolvent, and the Secretary could probably not collect an amount equal to or more than that offered in compromise. A taxpayer is insolvent if:
  • A judicial proceeding determined the taxpayer to be insolvent
  • It is “plain and indisputable” that the taxpayer is “clearly” insolvent and will remain so in the reasonable future
• It is improbable that the state will collect more than what the taxpayer offers in compromise, and a substantial portion of the funds used to make the offer are from sources the Secretary could not otherwise collect from
• The taxpayer had an OIC accepted by the IRS for a federal tax assessment “arising out of the same facts,” “on the same or similar basis as that proposed to the state” and the Secretary could probably not collect an amount equal to or more than the amount offered in compromise by the taxpayer.
• Collecting a greater amount than what the taxpayer offered in compromise would produce an unjust result “under the circumstances.”

Other Findings Considered Specifically Related to a Business

• “The taxpayer is a retailer or a person under Article 5 of this Chapter; the assessment is for sales or use tax the retailer failed to collect, or the person failed to pay on an item taxable under G.S. 105-164.4(a)(10) through (a)(15), and the retailer or person made a good-faith effort to comply with the sales and use tax laws. This subdivision expires for assessments issued after July 1, 2020.”
• “The assessment is for sales tax the taxpayer failed to collect or use tax the taxpayer failed to pay as a result of the change in the definition of retailer or the sales tax base expansion to (i) service contracts, (ii) repair, maintenance, and installation services, or (iii) sales transactions for a person in retail trade. The Secretary must determine that the taxpayer made a good-faith effort to comply with the sales and use tax laws. This subdivision applies to assessments for any reporting period beginning March 1, 2016, and ending December 31, 2022.”

North Carolina Offer In Compromise Basic Requirements

To qualify for an Offer in Compromise, you must provide financial documents that indicate that the state would probably not collect full payment in the foreseeable future.

You must also:

• pay all estimated payments (if required) for the current year
• file all required tax returns and reports
• have received a final notice of assessment for all North Carolina taxes that you owe
• not be the subject of an open or active bankruptcy case
• file the current year’s tax return(s) and paid any liabilities shown due in full. The current year’s tax return is the return most recently due.

Steps to Prepare and Submit OIC

To apply for an offer in compromise, a taxpayer must:

• Complete OIC-100 Form
• Complete your OIC-1062 if they are an individual or sole proprietor or OIC-1063 if they are a business (notate “NA” for any times that do not apply)
• If the source of funds for the OIC comes from a third party, attach form OIC-102 to OIC-100.
• Provide supporting documentation
  • NC will require the taxpayer to provide the last two months of paystubs if they are a wage earner. Moreover, they will also need to provide copies of the previous three bank statements for all accounts, complete copies of last two federal income tax returns (if you had to file), and a current federal account transcript for each outstanding period and tax schedule for money owed to IRS. Furthermore, substantiation for any claims of special circumstances made in section 8 of OIC-100. Finally, the taxpayer must also substantiate claimed mortgages or vehicle liens.
• Ensure your liabilities have been finally assessed by the Department
• Pay a 20% down payment of the amount of your offer when you submit your OIC (that is non-refundable). Exceptions for this are when the taxpayer is below federal poverty guidelines or when the taxpayer submits form OIC-12 with the OIC.
• Provide a computation of claimed corrected tax due if the basis for your compromise is reasonable doubt as to the amount due
• Submit information to the service center that serves your county of residence. You can find these on page 12 of the OIC booklet.

Documents and Related Forms

You must complete an OIC-1062 if you are an individual or an OIC-1063 if you are a business.  All business offers must attach an OIC-1062 form for each officer, partner, or member.

Everyone must fill out an OIC-100 Offer In Compromise.  You should fill out the OIC 101A, OIC 101B, or OIC 101C depending on if you are an individual, business or sole proprietorship.

• RO-1062 Collection Information Statement for Individuals or Sole Proprietorships. Individuals need to complete sections one through eight. Proprietorships and the self-employed must complete sections one through ten.
• RO-1063 Collection Information Statement for Businesses (for corporations, partnerships, LLCs, etc.)
• OIC-100 Offer In Compromise
• OIC-101A Worksheet for an Individual
• OIC-101B Worksheet for a Business
• OIC-101C Worksheet for a Sole Proprietorship
• OIC-102 Third Party Affirmation (must be notarized)

Note: Information on OIC-1062 and 1063 help the state determine collection potential. If the state decides that you can pay your tax liabilities quickly or through the use of an installment payment agreement (payment plan), then NC will most likely deny your offer.

Financial Factors NC Secretary of Revenue Considers

The state will analyze liquid assets, real property, personal property, and all other property.  Your asset values, minus any liens superior to the Department’s, will equal your total equity in assets.  The Department calculates your monthly disposable income by subtracting the lesser of monthly allowable or actual expense from total income. It will also consider future disposable income. Total allowable monthly expenses are computed using the Collection Financial Standards provided by the IRS.

If the taxpayer’s income varies from month to month, the Department of Revenue may require a longer period of documentation.

If NC’s DOR accepts the offer, the taxpayer must pay the full amount of the OIC by the date specified in the acceptance letter (usually 30 days from the date of the letter).

Payment Amount

The taxpayer must pay 20% of the amount offered in compromise in certified funds when the taxpayer submits the OIC.  There is an exception if the taxpayer’s income falls below the federal poverty guidelines or if the taxpayer includes a Third Party Affirmation form with the offer.  If the OIC is later denied, NC will not refund the 20% down payment.

If NC Accepts the Offer In Compromise

Payment of the accepted offer must be made in certified funds or by credit card by the payment due date as indicated on the acceptance letter (usually 30 days from the date of the acceptance letter). Furthermore, the total amount due will be the accepted offer amount minus the 20% down payment. Payment plan payments currently in effect will have no impact on the remaining 80% due.  If NC receives the remaining 80% due with the offer acceptance, DOR will release the recorded Certificate of Tax Liability

The Department does not accept payment plans on an offer in compromise.

Enforced Collections

NC’s DOR will not necessarily stop forced collection actions because an Offer In Compromise is submitted. However, if the department approves the application, it will usually stop enforced collections such as tax garnishments. 

Reasons for Denial

The NC Department of Revenue may deny an Offer In Compromise if the taxpayer fails to meet the basic requirements discussed above. Other reasons for denial may include:

• Failure to provide the necessary documentation or providing insufficient documentation
• Omitting items from collection information statement
• History of noncompliance
• DOR determines the value of the property is different than what the taxpayer shows on the financial statement
• If the tax amount owed is based on taxes collected from others and it is not remitted (payroll or sales taxes)
• If DOR determines they can collect more over the statutory period of collection than the amount offered
• Taxpayer’s current installment agreement will pay more over the statutory period of collection than the offer

Taxpayer Appeal

North Carolina statutes make no provision for appeal of a denied offer. However, the Department may reconsider a denied OIC if there is a material change in the taxpayer’s circumstances, or if the Department misinterpreted information contained in the original offer. Most importantly, the denial letter will include contact information for the Revenue Officer assigned to your case for questions or clarifications.

The Bottom Line

NC’s Offer In Compromise program is a great option for financially distressed taxpayers to resolve tax liabilities. However, many do not qualify. Therefore, working with a licensed tax professional can help make the process easier. In other words, a licensed tax professional with experience in tax resolution can help improves a taxpayer’s chances for acceptance. A taxpayer is denied an offer in compromise, you can request to pay your liability through an installment payment agreement.

When considering an Offer in Compromise, it is prudent to work with a licensed tax professional who has experience with a North Carolina offer in compromise, click the link to see professionals with North Carolina OIC experience or start your search below. 

Disclaimer: This article is not legal or tax advice. This article should not be used as a substitute for the advice of a competent attorney or tax professional admitted or authorized to practice in your jurisdiction.

North Carolina State Tax Payment Plan Overview

If a taxpayer owes back taxes to the State of North Carolina, they can set up its version of a tax payment plan. NC’s Department of Revenue (DOR) calls it an Installment Payment Agreement. An Installment Payment Agreement allows a taxpayer to pay off their taxes (including accrued penalties and interest) over a series of monthly payments.  Moreover, the state will not let a taxpayer set up an Installment Payment Agreement until it sends the taxpayer an official notice. Consequently, once the taxpayer has received a tax notice, they can consider requesting an Installment Payment Agreement to avoid enforced collection action.

If you have received a notice from the state, you can request a payment agreement based on the following parameters:

North Carolina Tax Payment Plan Details

Tax Type	Tax Owed	Months
Individual Income	Less Than $1,000	15
Individual Income	$1,000 to $6,999	30
Individual Income	$7,000 to $49,999	40
Individual Income	$50,000 or more	50
Business	Any Amount	12

Applying for an NC Payment Plan

A taxpayer can request an Installment Payment Agreement by filling out a form online.  You can find the North Carolina Department of Revenue’s links to this Installment Payment Agreement form online now. In this case, there are no fees to apply for or to process your application for an installment payment plan.

Remember, taxpayers need to receive official notice from the N.C. Department of Revenue to request an Installment Payment Agreement. If they have not yet received one, they can make payments on the Department of Revenue’s website.

Individuals also have the option of calling 1-877-252-3252.

Other Documentation a Taxpayer May Need

If the taxpayer believes that they cannot make payments according to the parameters provided by the Department, the taxpayer may submit more information for review. In other words, the taxpayer needs to complete a form. Specifically, individuals should use the Collection Information Statement for Individuals (Form RO-1062), and Businesses should use Collection Information Statement for Business (Form RO-1063). Therefore, if you are submitting financial information to the NC Department of Revenue, you may want to receive help from a licensed tax professional.

Generally, when submitting these forms, a taxpayer must include three months of bank statements and supporting documentation for all income and expenses listed on the forms.

What Else Do I Need to Do to Apply for a Payment Plan?

To apply for an installment payment agreement, a taxpayer must:

• Continue to file and pay all tax returns in full during the entire term of the agreement
• Have a bank account
• Allow the Department to take automatic payments
• File and pay estimated income taxes
• Provide any additional information that the Department requests

Forms of Payment Accepted

An installment payment plan can only be paid by automatic electronic debit from a bank account. Consequently, you are required to have a Personal Checking, Personal Savings, Business Checking, or Business Savings account to set up a plan.

Reasons for Payment Plan Being Denied or Defaulted Automatically

Taxpayers can default on an installment payment agreement automatically or receive a denial if they:

• Fail to file and continue to pay all tax returns in full during the term of the agreement
• Do not have a bank account
• Fails to make a scheduled payment, or the payment is returned
• Do not pay current estimated income taxes
• Do not provide any requested information to the DOR

Potential Negative Consequences From Obtaining a Payment Plan

If you obtain an installment payment plan with the Department of Revenue and default on any of the terms, the Department must take legal action to force collection of the tax immediately.

Forced collection actions include:

• Garnishment and Attachment – An order that requires that money be withheld from a taxpayer’s bank accounts, wages, or other intangible property.
• Certificate of Tax Liability (CTL) – A CTL places a judgment on real or personal property that is held by a taxpayer. Moreover, a CTL is public information and must be resolved to obtain a clear title to a property.
• Jeopardy Assessment – The NC Department of Revenue may immediately assess and collect any tax the Department finds in jeopardy. Furthermore, when making a jeopardy collection, the Department may use any collection remedy in NC General Statutes § 105-242.
• Tax Warrant – A tax warrant is a request issued to a Sheriff to seize and sell any personal property owned by a taxpayer who has failed to pay taxes, penalties, interest, or fees that have been assessed by the NC Department of Revenue.

When in doubt, it is generally a good idea to work with a licensed tax professional that has resolved or has experience fixing tax problems with North Carolina's DOR, click the link or start your search below to see top-rated tax professionals. Sometimes other options, like an Offer in Compromise can be a better course of action if a taxpayer qualifies. 

Disclaimer: This article is not legal or tax advice. This article should not be used as a substitute for the advice of a competent attorney or tax professional admitted or authorized to practice in your jurisdiction.

New Jersey Closing Agreement Overview

The State of New Jersey does not have a formal “offer in compromise” agreement program like the Federal Government. What they do have is a program where the taxpayer can ask the Division to accept a “Closing Agreement.” In effect, a Closing Agreement is the same general idea as an offer in compromise (OIC). In other words, the taxpayer is asking the state to accept a lesser amount than their full delinquent tax liability. The arrangement will include the delinquent tax due, as well as, penalties, interest, and any collection fees that have accrued.

The Division only provides general guidance as to what specific criteria a taxpayer must meet to qualify. New Jersey law gives the Division full discretion to accept Closing Agreements. The guidance reads as follows:

“[F]or any case in which there appears to be an advantage in having the case permanently and conclusively closed, or if good and sufficient reasons are shown by the taxpayer for desiring a closing agreement and it is determined by the director that the state of New Jersey will sustain no disadvantage through consummation of such an agreement.”

The code section does not elaborate on specific criteria or processes that must be, or should be, implemented to determine when resolving taxes owed would be an advantage to the State of New Jersey.

Further, the Division does not give guidance as to how it implements the above-stated law. However, they provide some detail as to general eligibility requirements, submission requirements, and financial documents needed. We discuss these items in more detail below.

Eligibility

The New Jersey Closing Agreement statute allows the Division to enter into Closing Agreements with taxpayers for any state tax administered by the Division for any taxable period ending before or after the date of the agreement.

Requirements

The following are the requirements for submitting a Closing Agreement Request:

• The taxpayer must complete and submit NJ Form 906 – Closing Agreement Request. This application can be found here: https://www.state.nj.us/treasury/taxation/pdf/other_forms/special_pro/906.pdf.

Required Documents

The following the Division needs the taxpayer to include with the submission of a Closing Agreement request:

• NJ Form 906 – Closing Agreement as to Final Determination Covering Specific Tax Matters.
• A copy of the taxpayer’s individual IRS tax returns and Corporate tax returns for the last two years (if applicable)
• A copy of filed Federal tax liens, if applicable.
• Copies of the most recent real estate mortgage statements with monthly payment amount and current balance due, if applicable.
• A copy of court-ordered judgments owed (other than federal and state), if applicable.
• Copies of monthly bills for food, housekeeping supplies, apparel and services, personal care products and services, and miscellaneous – if amounts exceed nationally allowed standards (discussed in more detail below).

Filing Process and Considerations

The State of New Jersey requires that the taxpayer submit the completed Closing Agreement in paper copy. Taxpayers should send their request and supporting documents to:

New Jersey Division of Taxation
Closing Agreements, 9th Floor,
PO Box 245, Trenton, NJ 08695-0245

Taxpayers should be aware that the submission of a Closing Agreement Request does not prevent the Division from filing a COD, tax refund offsets, or stay any enforced collection actions, including garnishments or foreclosures. Further, the filing of a Closing Agreement Request does not protect the taxpayer from otherwise making payments under a previously negotiated Installment Agreement.

Taxpayers should be aware that the Division reserves the right to use any information the taxpayer provides in the Closing Agreement Request for liability collection purposes.

Review and Determination

Once the Division has received the Closing Agreement Request and supporting materials, they will review it. The Division will accept, reject or counter-offer. It generally will make this determination and notify the taxpayer within 3-6 months.

The Division reviews the following financial information during the review of a Closing Agreement Request:

• Employment Information
• Spouse’s Employment Information (including non-liable spouses)
• Dependent Information
• Monthly Income and Expense Information
  • Taxpayers will be allowed the national standards for food, housekeeping supplies, apparel and services, personal care products and services, and miscellaneous, based on their family size, without question (a copy of the standards is attached to the NJ Form 906). If the monthly expense amounts exceed the national standards, the taxpayer must provide documentation to substantiate those expenses are necessary living expenses. Generally, the total number of persons allowed for family size are the same as those allowed as exemptions on the taxpayer’s most recently filed tax return.
• Assets
  • Cash, bank accounts, stocks, bonds and other securities, cash value life insurance, motor vehicles (owned and leased), liabilities owed to you, household furniture and goods, items used in a trade or business, real estate, and all other assets not already listed.
• Liabilities:
  • Bills owed, installment liabilities, federal taxes owed, state taxes owed, real estate mortgages, loans payable, judgments owed, and all other liabilities not already listed.

A Decision Within Three to Six Months

The Division will issue a notice to the taxpayer stating whether the Closing Agreement Request has been accepted, rejected, or a counter-offer proposed. Taxpayers will usually receive this notice within 3-6 months after the filing of their Request. The taxpayer does not have the right to appeal a denial of a Closing Agreement Request. However, they do have the ability to refile the application if their circumstances change. Furthermore, the tax liability will not be subject to audit, and the taxpayer cannot claim a refund.

Guidance

If you have a state tax problem with New Jersey's DOR, reach out to a licensed tax professional that has experience resolving NJ state tax problems, or start your search below. Realize that if you do not qualify for a closing agreement, NJ's DOT offers payment plans among other resolution options.

Disclaimer: This article is not legal or tax advice. This article should not be used as a substitute for the advice of a competent attorney or tax professional admitted or authorized to practice in your jurisdiction.

State of NJ Options for Back Taxes

The State of New Jersey, Department of the Treasury, Division of Taxation (the “Division”) is responsible for all facets of the state’s tax administration.
It manages everything from assessment to tax collection. With that said, the Division has chosen to contract with a private company to assist with collecting delinquent taxes. Currently, the Division employs Pioneer Credit Recovery for this task. Once a taxpayer’s case is with Pioneer they must deal with them directly to reach a tax resolution.

Once the Division generates an assessment for taxes owed to the State of New Jersey, it will review the taxes owed and assign a caseworker to the account. The caseworker will then mail an initial contact letter which includes a schedule detailing the amounts owed. If a taxpayer does not respond to the initial contact letter, the caseworker will attempt to contact the taxpayer via telephone. If the taxes owed still has not been resolved, the Division will issue a Certificate of Liability (“COD”) with the Clerk of the New Jersey Superior Court.

For practical purposes, a COD is the New Jersey equivalent of a tax lien. If the Division issues a COD, the state will also begin to assess a Cost of Collection Fee. The collection fee becomes part of the liability owed. Further, the State of New Jersey adds penalties and interest to taxes owed. Moreover, it may add a Referral Cost Recovery Fee of 10.7% for cases sent to Pioneer Credit Recovery.

Contact the New Jersey Division of Taxation:

• Individual Taxes: 609-292-6400
• Business Taxes: 609-292-6400
• General Inquiries: 1-800-323-4400
• Collections: 1-866-372-6840
• Website: New Jersey Division of Taxation

NJ State Individual Tax Options

Taxpayers who owe back taxes to the State of New Jersey have three main options available to reach a tax resolution. These are:

• Installment Agreement (Payment Plan),
• Closing Agreement, and
• Penalty Abatement

An Installment Agreement is also known as a Payment Plan. It is a payment arrangement where the taxpayer makes a series of monthly payments to the Division until the taxpayer satisfies the past due tax liability. A Closing Agreement is a program similar to what the Federal Government and other states call an Offer in Compromise. Here, the taxpayer may offer to settle their delinquent tax liability for less than what the taxpayer owes. Finally, a request for Penalty Abatement is a written request asking for relief with tax penalties. In other words, the taxpayer asks the Division to waive some, or all, of the tax penalties it has assessed.

Statute of Limitations

Arguably, the first thing a taxpayer must consider before pursuing a resolution is to determine the taxpayer’s legal rights under New Jersey law concerning the statute of limitation rules for the collection of back taxes.

In New Jersey, the Division has six years from the date of the first assessment to file a COD with the New Jersey Superior Court against the taxpayer for the delinquent tax due. Additionally, the State Attorney General may bring an action against the taxpayer in New Jersey Superior Court for the recovery of taxes owed that has been assessed in the six years before the commencement date of the action. Finally, New Jersey law only requires that the COD be renewed by the Division every 20 years. Moreover, it also provides for no limitation on how long the Division may keep the COD issued. The only method for having a COD released by the Division is to satisfy the taxes fully.

Innocent Spouse

The Federal Government and most states have innocent or injured spouse programs. These programs provide tax relief for these taxpayers who otherwise are not responsible for their spouse’s taxes iwed. Unfortunately, the state of New Jersey is one state that does not provide this program. Taxpayers who believe they are not liable for taxes based on innocent spouse principles must timely challenge the assessment. Otherwise, they can make their case through the Closing Agreement Request process.

Alternative Options That May Be Available

Contest the Assessment

If the taxpayer has a proposed assessment for additional income tax due as a result of a State of New Jersey audit, they have the opportunity to appeal the proposed assessment. The taxpayer has three appeal options:

(1) protest and request an informal administrative conference with the Conference and Appeals Branch,

(2) file an appeal with the required fee to the Tax Court, or

(3) a taxpayer who paid the entire assessment within the one-year appeal period may file a refund claim after that.

The taxpayer may not resolve their tax situation with the Conference and Appeals Branch. If so, the taxpayer may appeal to the Tax Court. The Conference and Appeals Branch is an informal body, while the New Jersey Tax Court is an administrative, judicial body. While a taxpayer may represent oneself in New Jersey Tax Court, it is advised to hire a licensed attorney who has experience practicing in the Tax Court.

Bankruptcy

Bankruptcy can be expensive. Therefore, this option is generally feasible for taxpayers who have personal liabilities in addition to their unpaid tax liabilities. Some taxpayers can discharge state taxes owed through bankruptcy proceedings. Taxpayers should contact an experienced bankruptcy attorney if they want to pursue this option.

The New Jersey Tax Amnesty Program

The State of New Jersey has conducted numerous tax amnesty programs. Currently, there are no active programs. The state did run a program in the past that ended January 15, 2019. This program was available for individuals and businesses with taxes owed. The Amnesty Program encourages delinquent taxpayers to become current. The state will waive penalties, and cut interest for those who file and fully pay their taxes owed. It is a program that most delinquent taxpayers should pursue.

Appeal Rights

As discussed herein, New Jersey law does not provide taxpayers with the right to appeal determinations of the Division concerning the collection of taxes owed. However, there are a couple of practical tips that the taxpayer, or their representative, should follow.

First, do not be afraid to escalate contentious issues to a manager within the Division. Often, a fresh set of eyes and the authority and experience of a supervisor can help resolve the matter amicably.

Second, if you believe that your case manager is not following New Jersey law, or discriminating against you, file a request for assistance with the Office of the Taxpayer Advocate (OTA). OTA helps taxpayers end their tax problems by:

• Helping taxpayers who are experiencing “undue hardship” as a result of Division actions;
• Working with taxpayers whose problems fall within the Division’s jurisdiction; and
• “Identifying systemic challenges within the Division that increase the burden on, or create certain issues for taxpayers. When appropriate, OTA will recommend administrative or legislative solutions.”

You can find more information about this on the Office of the Taxpayer Advocate website.

Certificate of Liability (COD)/Lien Releases

The Division will only release a COD in different situations. First, if the taxes owed, including any penalties, interest, and collection fees, has been paid in full. Second, it may release a COD if the taxes owed is satisfied through a Closing Agreement or Penalty Abatement.

Conclusion

Taxpayers have many tools at their disposal when dealing with back taxes in the State of New Jersey. With that said, New Jersey has a statute of limitations to hold open filed CODs. Additionally, the penalty, interest, and collection fees system results in reasonable taxes owed ballooning into crippling liabilities. Therefore, taxpayers should consult with a qualified tax professional as soon as these problems arise to determine which course of action is most appropriate for their situation. You can also find the top-rated professionals by license type below.

• New Jersey Enrolled Agents
•  New Jersey CPAs
• New Jersey Tax Attorneys

Disclaimer: This article is not legal or tax advice. This article should not be used as a substitute for the advice of a competent attorney or tax professional admitted or authorized to practice in your jurisdiction.