What are back taxes owed?

The concept behind the phrase “back taxes” is fairly simple. Back taxes are taxes due during a particular tax year that are not paid before the tax due date. In other words, if a taxpayer can't pay all of their taxes for a year, they'll owe back taxes. When taxes are overdue or overdue, usually from previous years, they are called back taxes.

And if you owe them, you may be wondering about tax relief. Back taxes are all taxes you owe and that remain unpaid after the year in which they are due. Basically, if you let an entire fiscal year go by without paying the IRS what you owe, they're considered “back taxes.” Back taxes are a term for taxes that weren't paid in full when they were due. These are generally taxes due from a previous year.

Causes of back taxes include not paying taxes by the deadline, not properly reporting income, or not filing a full tax return. We may file a Federal Tax Lien Notice in the public registry to notify your creditors of your tax debt. In addition, any federal tax or state income tax refund due to you in the future may be garnished and applied to your federal tax liability. An OIC is an agreement between a taxpayer and the IRS that resolves a taxpayer's tax liability by paying an agreed reduced amount.

To determine if you qualify for tax relief through a transaction offer, the IRS considers your ability to pay, your income and expenses, and the amount you have in assets. For example, you can view most of the items on your tax returns processed during the past three years or get basic data, such as your marital status, how you paid, and your adjusted gross income for the current tax year and up to the past 10 years. If you don't pay all the taxes you must pay in that tax year, you'll owe the IRS to pay back taxes. The federal tax levy arises automatically when the IRS sends the first notice demanding payment of the tax debt charged to you and you don't pay the full amount.

Paying the full amount of the tax debt as soon as possible is always the least expensive option for the taxpayer because of penalties and the accrual of interest. Technically, you must file all the tax returns you must file, and the IRS can prosecute you for any year you haven't been filed. The interest on the debt ranges from 0.5% to 25% for each month in which the taxpayer is late in paying their tax debt. That fee may be higher than what you end up saving on your tax bill if the IRS accepts your transaction offer (and may not be refundable if the IRS rejects your offer).

Basically, this means that the IRS has a 10-year deadline to collect on a taxpayer's deficit, and once that deadline closes, the IRS loses its legal right to back taxes. If you think you'll be able to save enough to pay your back taxes in full in just a few months, this may be a convenient payment method for you. For more information, see the Taxpayer Bill of Rights, Publication 1, Your Rights as a Taxpayer, Publication 594, IRS Collection Process (PDF) and Publication 1660, Collection Appeal Rights (PDF). IRS public inspection files on transaction offers include the taxpayer's name, city, state, zip code, amount of liability, and terms of the taxpayer's offer.