Keith Mack
If you're behind on your taxes, it's important to know your rights and the potential consequences. While it may be stressful, it's best to face the situation head-on and take accountability. Depending on your location, you may be able to enter into a delinquent tax contract with your county treasurer, allowing you to make payments over time. Additionally, you can contact the IRS, which offers payment plans and is known to work with taxpayers to find solutions. In some cases, you may be able to request an installment payment plan or settle your debt for less than the full amount through an offer in compromise. However, failing to pay your property taxes can result in tax foreclosure, where the county initiates a legal process to take your home. It is important to understand your options and seek professional help if needed to resolve your tax debt.
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Payment plans
If you are unable to pay your taxes on time, you can request a payment plan from the IRS. This is an agreement to pay your taxes within an extended time frame. There are short-term and long-term payment plans available, and you may be eligible for one of these if you are unable to pay your taxes in full.
Short-term payment plans
Short-term payment plans allow taxpayers to pay off their tax debt within 180 days (or 120 days, according to another source). If you owe less than $100,000 in combined tax, penalties, and interest, have filed all your tax returns, and can finish paying off your tax debt within six months, you are likely eligible for a short-term payment plan. There is no user fee for this option, but interest and penalties will continue to accrue until your liability is paid in full.
Long-term payment plans
Long-term payment plans, also known as instalment agreements, allow taxpayers to pay off their tax debt in monthly instalments over a longer period, usually up to six years (72 months). If you owe $50,000 or less in combined tax, penalties, and interest, have filed all your tax returns, and need more than six months to pay your tax bill, you may be eligible for a long-term payment plan. With a long-term payment plan, you can typically set how much your monthly payment is, but you must choose an amount that enables you to clear your debt within the specified period. There is a user fee to set up a long-term payment plan, but this may be waived or reimbursed if you are a low-income taxpayer.
How to apply for a payment plan
You can apply for a payment plan online through the IRS Online Payment Agreement tool. Alternatively, you can apply by phone or by mail by submitting Form 9465, Installment Agreement Request. If you don't qualify for an online payment plan, you may still be eligible to apply by mail or phone.
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Foreclosure
During the tax lien stage, a statutory lien is placed against the property of the person who has failed to pay their taxes. A tax lien certificate is then issued, which can be sold by the state to a trust or investor through a public auction. The buyer of this certificate becomes the new holder of the lien and has the legal right to collect the underlying debt, plus interest.
In some cases, the property owner may be granted a redemption period, during which they have the opportunity to pay off the lien and any associated fees and interest. If the debt is resolved during this period, the investor will be reimbursed their investment plus any accrued interest. However, if all attempts to collect the delinquent taxes are exhausted and the redemption period expires, the lien holder can initiate a judicial foreclosure proceeding against the property.
The judicial foreclosure process can vary from state to state, but it generally involves a municipality filing a lawsuit to place a lien or acquire the deed to the property. This can result in a settlement, such as a payment plan for the tax arrears, or the property owner paying off the taxes with interest and penalties. If the taxes remain unpaid, the property may be foreclosed, and the municipality can take possession of it or sell it at an auction.
It is important to note that, in some cases, local governments have been accused of taking advantage of vulnerable homeowners during the foreclosure process. There have been instances where governments have kept the homeowner's equity after the tax debt is paid, which has been deemed unconstitutional by the Supreme Court.
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Delinquent tax contracts
In the United States, delinquent tax contracts vary by state and local regulations. For example, in Ohio, the Revised Code Section 323.31 allows for Delinquent Tax Contracts to be established by the Clermont County Treasurer. This contract enables taxpayers to make scheduled delinquent instalments on real property tax, with a minimum of two years to pay off the delinquency. The contract is initiated when the property owner signs and makes the first delinquent instalment payment, along with any current taxes due.
Similarly, in Oswego County, delinquent property owners can enter into Installment Agreement Agreements with the County Treasurer's Office. This agreement typically requires a 25% down payment of the outstanding balance, including principal, interest, and fees, and includes all parcels with delinquent taxes. During the agreement term, taxpayers must make full and timely payments, and any new or unaddressed tax bills must be paid on time to the appropriate tax-collecting officers.
In some states, such as Texas, additional penalties may be imposed on delinquent taxes to defray collection costs. These penalties may be outlined in the contract with an attorney handling the collection of delinquent taxes. The taxing unit or appraisal district is responsible for sending a notice of delinquency and any applicable penalties to the property owner.
It is important to note that failure to comply with delinquent tax contract terms can result in serious consequences, including the voiding of the contract, foreclosure proceedings, or the sale of the property. Therefore, taxpayers should carefully review the terms and conditions of delinquent tax contracts and seek professional advice if needed to ensure they understand their rights and obligations.
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Tax liens
A tax lien is a legal claim a government places on real estate or other assets when the owner is past due on taxes. The IRS can place a lien on a person's current home, car, bank account, and any future property they acquire. A lien attaches to all of your assets and to future assets acquired during the duration of the lien.
If you are behind on your taxes, you must take immediate action to minimize the financial impact on you and your company. If you don't fully understand the tax issues at hand, you're unsure if you're in compliance, or you're in serious tax trouble, consider getting professional help. A tax resolution specialist will be able to determine the best strategy to resolve the back tax issue.
If you can't file or pay on time, don't ignore the letters or correspondence you get from the IRS. If you can't pay the full amount you owe, payment options are available to help you settle your tax debt over time. You can request an additional 60-120 days to pay your account in full through the Online Payment Agreement application or by calling 800-829-1040; no user fee will be charged. If you need more time to pay, you can request an installment agreement or you may qualify for an offer in compromise.
If your tax bill includes penalties, you can try writing a letter to ask for an abatement of penalties due to circumstances, such as ill health or not being aware of tax problems. The IRS can be surprisingly cooperative, especially if you have not asked for an abatement before. If the penalty is removed, it also removes interest that has accrued thus far on that penalty.
There are several options for reducing the impact of a lien. A "discharge" removes the lien from specific property. "Subordination" does not remove the lien but allows other creditors to move ahead of the IRS, which may make it easier to get a loan or mortgage. A "withdrawal" removes the public Notice of Federal Tax Lien and assures that the IRS is not competing with other creditors for your property; however, you are still liable for the amount due.
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Interest and penalties
There are several types of penalties, including failure-to-file and failure-to-pay penalties. The failure-to-file penalty is usually 5% of the tax owed for each month or part of a month that your return is late, up to a maximum of 25%. The failure-to-pay penalty is one-half of one percent for each month, or part of a month, up to a maximum of 25% of the amount of tax owed. This rate increases to 1% if the tax remains unpaid 10 days after the IRS issues a notice of intent to levy property.
If you can show reasonable cause for not meeting your tax obligations, some penalties may be reduced or removed. However, interest cannot be removed or reduced unless the penalty is also removed or reduced. If you believe there is an error in your notice or bill, you can write to the IRS office or call the number listed, providing photocopies of any records that may help the IRS address the error.
In some cases, the IRS will seize property, assets, or place liens on property. A lien does not mean that the asset will be sold but ensures that the tax authority gets first claim over other creditors. If taxes remain unpaid, the IRS can use a tax levy to legally seize and sell the taxpayer's assets to collect the money owed.
To avoid interest and penalties, it is important to file your return and pay your taxes by the due date. If you cannot pay the full amount of taxes owed on time, you can pay what you can and apply for a payment plan.
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Frequently asked questions
Back taxes accumulate interest and penalties over time. If back taxes remain unpaid, serious legal action can be taken, including tax liens, wage garnishment, or prison time. The IRS may also seize assets or place liens on property.
It is important to file all tax returns that are due, regardless of whether you can pay in full. If you cannot pay what you owe, you can request additional time to pay your account in full. You may also qualify for an offer in compromise or an installment agreement.
The IRS may remove or reduce penalties if you can show reasonable cause for not meeting your tax obligations. However, by law, interest cannot be removed or reduced unless the penalty is also removed or reduced.
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