How to Resolve Back Taxes

Posted on April 18, 2022

How to Resolve Back Taxes

Many taxpayers who miss the tax return filing deadline often find themselves in tax debt. The IRS does not accept tax returns after midnight on April 15th. Resolving back taxes is not difficult if a taxpayer is able to pay the entire amount with interest and penalties in a single payment. However, taxpayers with large tax debts usually are not in the financial situation to pay the entire debt amount at once.

Back Taxes Penalty

The failure-to-file penalty is usually 5 percent per month, up to a 25 percent maximum. The penalty is charged each month after the expiry of the deadline for filing taxes. If the return is filed more than 60 days after the filing deadline or extended deadline, the minimum amount charged is $135 or 100 percent of the unpaid tax.

The failure-to-pay penalty is charged if taxpayers do not pay all the taxes owed. The failure-to-file penalty is usually more than failure-to-pay, so it is advisable for taxpayers to file their tax returns and try to negotiate an IRS payment plan.

If taxpayers face both failure-to-file and failure-to-pay penalties in a month, the 5 percent penalty for failure-to-file is reduced by the failure-to-pay penalty.

The IRS provides a penalty relief program to taxpayers who are in financial difficulties. Taxpayers can get help from a tax resolution service or a tax professional for reduction of penalties.

IRS Resolution Plans for Back Taxes

The IRS has various resolution plans, which taxpayers can comfortably resolve their tax problems. Depending upon the financial capabilities of taxpayers, the IRS has many debt resolution plans, such as:

  • Installment Agreement
  • Offer in Compromise
  • Currently Not Collectible
  • Partial Payment Installment Agreement

Every debt resolution plan has its own restrictions, but negotiation is possible. To discourage taxpayers for filing for resolution plans they are not eligible for, the IRS charges an additional penalty for indiscretion.

It is advisable for taxpayers to consult a tax professional or a tax service before applying for a debt resolution plan because negotiation may get them a more advantageous resolution. Instead of facing IRS collection actions, taxpayers should strive to resolve their back taxes early.