Can An Attorney Help With Back Taxes?

Yes! Searching for an experienced attorney for help with back taxes? Victory Tax Lawyers offers free consultations for clients in need of tax relief nationwide!

Most Americans become nervous when filing their taxes for the year. Just the thought of the IRS seeking out and finding something wrong within your filings can make you nervous. As taxpayers, we tend to accumulate tax issues. Which makes you wonder, what happens when someone owes back taxes? While it’s certainly not worth fleeing the country like in the movies, it is worth seeking out advice. Experienced tax attorneys make a career out of studying the law, in order to help others with any tax issues.

What Are Back Taxes?

Back taxes are defined as partially, or fully unpaid taxes in the year they’re expected. Back taxes usually relate to federal tax problems. The IRS maintains a record of all taxpayers who don’t file their required taxes. In the event you don’t file your taxes and show up on this list, the IRS has the power to pursue your delinquent tax returns by wielding penalties of varying degrees.

Over the years, unpaid IRS taxes will accumulate interest and penalties related to ongoing tax issues or installment agreements with monthly payment plans. As a law-abiding taxpayer, it is in your best interest to avoid these added complications to your tax liabilities by simply filing your taxes and dealing with the amount owed afterward.

How to File Back Taxes?

The first thing you should note when preparing to file your back tax returns is because they are late, the IRS will likely take extra time going through them. Due to this added scrutiny, spend extra time preparing and double-checking each form, all information, and additional paperwork prior to filing.

Save Important Tax Documents

With technological advancements, you can easily assemble your documents at home before paying your taxes. Just collect the mailed documents from the IRS and any supplemental sources you have to get started. To file your returns, you must utilize the proper tax form. You will likely need to fill out a W-2 form, or 1099 Form that you were mailed in order to report your income in detail.

If you are eligible, or unsure of your deductions and credits, assemble all receipts and any other supporting records from bank accounts and credit cards that prove your eligibility. Adding these documents will provide you with a better advising service from your tax professional.

If your back taxes are not paid, one of the circumstances that may occur is the IRS notice of a tax lien. A tax lien is the government’s legal ability to claim real or personal property upon delinquent income taxes owed.

Request Missing Documentation

If you are missing any of your tax documents from the past 10 years, you can request a copy from the IRS by filing Form 4506-T, Request for Transcript of Tax Return. Use this form to request W-2s, 1099s, and 1098s that may provide support for some of your deductions.

Though you will not receive a duplicate of the original form, the IRS will provide you with a transcript of all relevant information, which is sufficient for filing your back tax returns. Keep in mind, it can take the IRS up to 45 days to process your request.

Download Last Year’s IRS Tax Forms

In order to properly file your back tax returns, you must first download the year in question’s IRS tax forms. Your back taxes must be submitted on the original forms for which they were intended to be filed. A quick search of the IRS website should help you find the paperwork you need, however, modern tax preparation software like TurboTax, H&R Block, and TaxSlayer should all have the forms readily available as well.

Prepare Back Tax Returns

Similar to filling out the proper year’s tax forms, you must also follow the same instructions from that year when preparing your back tax returns. Every year the tax law changes, be it in a significant or minor way. Preparing your back tax returns under the instructions of the current year may lead you to have to prepare and file the back tax return a second time.

Submit Forms to the IRS

A few tips to remember before submitting your back tax forms include paying a large enough amount of money you may owe from past years in order to cut down your inevitable interest fees. Another reminder is that back tax interest differs from standard tax penalties. Tax penalties stop upon reaching your maximum amount, however back tax interest continues to accrue each month until the entire tax issue is paid off.

Once you’ve double and triple checked each of your tax forms, it’s officially time to submit your returns to the IRS. The mailing address can be found within the instructions listed on Form 1040.

Statute of Limitations for Collecting Back Taxes

The statute of limitations is a legal provision that limits the amount of time tax authorities have to collect unpaid taxes from a taxpayer. In the United States, both the Internal Revenue Service (IRS) and state tax authorities have specific time frames within which they can pursue the collection of back taxes.

The statute of limitations for collecting back taxes begins from the date a tax return is filed or, in some cases, from the date when taxes were originally due, whichever is later. The specific time frame varies depending on the circumstances:

1. Assessment Period

The IRS typically has a three-year window starting from the date of your tax return filing to assess and recover overdue taxes.

2. Unfiled Tax Returns

If you fail to file a tax return altogether, there is no statute of limitations on the IRS’s ability to collect the tax debt. This means they can pursue collection efforts indefinitely until a return is filed.

3. Fraud or Evasion

In cases of tax fraud or evasion, there is no statute of limitations. The IRS can pursue collection efforts at any time, even if the tax debt is decades old.

4. State Tax Authorities

State tax agencies may have different statute of limitations rules, which can vary widely by state. Some states follow the federal guidelines, while others have their own time frames.

Implications for Taxpayers

Understanding the statute of limitations is crucial for taxpayers for several reasons:

• Debt Relief: If the statute of limitations has expired for a particular tax year, you may be able to use it as a defense against collection efforts.
• Peace of Mind: Acknowledging the presence of a time limit on collection efforts can provide peace of mind to taxpayers.
• Strategic Planning: Taxpayers facing back tax issues can strategically plan their actions based on the statute of limitations.

Bankruptcy and Back Taxes

Dischargeable vs. Non-Dischargeable Tax Debt

Not all tax debts are created equal in the eyes of bankruptcy law. While some tax debts can be discharged in bankruptcy, others cannot. Generally, income tax debts that meet certain criteria may be eligible for discharge in both Chapter 7 and Chapter 13 bankruptcy.

Criteria for Dischargeable Tax Debt:

• The tax debt must be income-based (e.g., federal or state income tax).
• The tax return for the debt must have been filed at least three years before filing for bankruptcy.
• The tax assessment must have occurred at least 240 days before filing.
• The taxpayer must not have engaged in tax evasion or fraud.

Non-Dischargeable Tax Debt

Certain types of tax debts are considered non-dischargeable and cannot be wiped out through bankruptcy. These typically include:

• Recent income tax debts that don’t meet the criteria for discharge.
• Payroll taxes owed by a business.
• Trust fund taxes withheld from employees’ paychecks.

Chapter 7 vs. Chapter 13

The type of bankruptcy you file for can significantly affect how your back tax issues are handled:

• Chapter 7: If you meet the criteria for discharging income tax debt, Chapter 7 can offer a fresh start by wiping out qualifying tax debts. However, you may need to surrender non-exempt assets for liquidation.
• Chapter 13: In a Chapter 13 bankruptcy, tax debts are typically included in the repayment plan. This allows you to pay off your tax debts over a period of three to five years, potentially with reduced interest and penalties.

Considerations Before Filing for Bankruptcy

• Eligibility: You must meet specific eligibility criteria to file for Chapter 7 or Chapter 13 bankruptcy. Consulting with a bankruptcy attorney can help you determine your eligibility and explore your options.
• Other Debts: Bankruptcy doesn’t exclusively address back taxes. It affects all your debts, so consider how it will impact your other financial obligations.
• Future Tax Compliance: Even if you successfully discharge some tax debt through bankruptcy, it’s crucial to ensure you stay current on your tax obligations moving forward.

Consequences of Not Filing Back Taxes

Failing to file your taxes tends to bring a higher penalty rate, as well as extra fees, which can accrue over time. If the taxpayer simply neglects the responsibility of filing their taxes for an extended period of time, possibly even years, the IRS may go ahead and file your taxes on your behalf. This is a worst-case scenario as the IRS will file your taxes in the simplest way possible, categorizing you as a single individual with just one exemption, regardless of your actual marital and exemption status.

This will ultimately lead to a much larger tax bill owed. Other reasons to file your taxes prior to the required deadline include avoiding unnecessary penalties, levying of assets, or in an absolute worst-case scenario, jail time.

Consequences of Not Paying Back Taxes

Absentee taxpayers run the risk of being charged exorbitant penalties and interest rates, having assets seized, and, in the most extreme events, jail time. If you require more time to pay your owed taxes, there are available options. Further consequences that may occur in the event you don’t pay your back taxes include a lien on either your paycheck or property, which will also damage your credit. Not paying may ultimately lead to you owing the federal government even more money than you owed.

Get Help to Prepare Your Back Tax Returns

Once you’ve assembled all the required documents for your tax attorney, they will thoroughly examine them to ensure you’ve provided an adequate set of financial records. It’s crucial to emphasize that attempting to complete the previous year’s tax forms using outdated instructions is not advisable. Tax laws change annually, and using the wrong set of instructions could result in the need to redo your tax return.

This is why we strongly recommend visiting Victory Tax Lawyers’ free consultation page. We are more than willing to assist you in addressing your financial concerns, whether they involve penalties, interest, or simple inquiries. Our team is here to provide you with the support you need.