Do Back Taxes Ever Go Away?

Introduction

Are you one of those thinking if back taxes ever be erased? Facing back taxes can be daunting, but understanding your options can help you manage or possibly eliminate this financial burden. In this article, we’ll dive deep into solutions for dealing with back taxes and highlight how certain IRS programs might offer you relief.

What Are Back Taxes?

Back taxes are due from a prior year for which you have either not filed a tax return or have underpaid. This debt can involve federal, state, and local taxes and accrue additional penalties and interest over time.

How Long Do You Have to Worry About Back Taxes?

The IRS typically has a ten-year period, known as the Collection Statute Expiration Date (CSED), to collect unpaid taxes. This timer starts ticking from the date your taxes were assessed. After this decade, the IRS usually can’t pursue collection, potentially erasing the debt from your records.

Example:
For taxes assessed from your 2010 tax return filed in April 2011, the IRS has until April 2021 to collect the debt. Post-2021, this debt may become uncollectible.

Can Back Taxes Be Forgiven?

IRS Fresh Start Program

The IRS Fresh Start Program is designed to help taxpayers manage sizable tax debts more easily. Below are some of the options available under this program:

Installment Agreements

For those owing $50,000 or less, the program proposes a streamlined installment agreement, allowing for monthly payments spread over six years. Full compliance with all filing and payment rules during this period is mandatory, and you may need to disclose financial details to qualify.

Offer in Compromise (OIC)

The Offer in Compromise permits you to settle your tax debt for less than the full amount if full payment would cause financial hardship. This process requires a thorough demonstration of financial incapacity, including detailed documentation of your income, expenses, and asset equity.

Steps to Apply for an OIC:

1. Check Eligibility: Review the IRS guidelines to ensure you qualify for an OIC based on doubt as to collectability, doubt as to liability, or effective tax administration.
2. Submit an Application: Complete and submit Form 656, Offer in Compromise, along with the $205 application fee and initial payment (both are non-refundable).
3. Provide Documentation: You’ll need to provide extensive financial documentation using Form 433-A (OIC) for individuals or Form 433-B (OIC) for businesses.
4. Await Response: After review, the IRS will respond with acceptance, a counter-offer, or rejection. If accepted, you must adhere to the terms precisely to avoid default.

Example:
Consider Jane, who owed $40,000 in back taxes. Facing dire financial difficulties, she applied for an OIC and was able to negotiate her debt down to $15,000 based on her documented ability to pay.

Tax Liens and Levies: Do They Ever Go Away?

Tax Liens

A tax lien is the government’s claim against your assets when you fail to pay a tax debt. It remains attached to all your property, including properties acquired during the lien period.

Removing a Tax Lien:

1. Pay the Debt in Full: Automatically releases the lien within 30 days.
2. Statute of Limitations: The Statute of Limitations expires with the CSED, and removes the lien if the IRS does not collect the debt within ten years.
3. Discharge of Property: You can remove specific properties from the lien under certain conditions.

Tax Levies

A tax levy involves the actual seizure of your property to satisfy the tax debt. This can affect wages, bank accounts, and physical assets.

Stopping a Levy:

1. Payment Arrangement: Establishing payment plans can prevent or stop a levy.
2. Appeal the Levy: You have the right to appeal to the IRS before and after they place levies.
3. Release of Levy: The IRS releases a levy if it causes economic hardship, the collection period ends, or you settle the debt.

Conclusion

Back taxes can be managed and potentially reduced through programs like the IRS Fresh Start. Understanding these options can turn a seemingly overwhelming debt situation into a manageable one.

What You Can Do Next

If back taxes are weighing you down, consider reaching out to a tax professional who can help navigate the complex process of tax relief. Proactive steps today can lead to significant financial relief tomorrow.

Need Help With Back Taxes?

Explore how to REDUCE, RESOLVE, or even ELIMINATE your back taxes through the IRS Fresh Start Program.

If you owe back taxes or have IRS issues, click here or call us directly at (800) 607-7565.

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