Every April 15, millions of people throughout the United States pay taxes, which are mandated for anyone that earned regular income or “other” taxable income.  These taxes are paid to a government agency known as the Internal Revenue Service, also referred to as the IRS.  Once a taxpayer realizes the amount of money due would not be available to meet this deadline, an extension could be requested from the IRS.  However, when people simply avoid paying taxes due, it is called “tax evasion”, which is punishable by law.  If the taxes due are never paid, they become “back taxes”, money still owed to the IRS.

To file taxes, most people use the services of a professional tax preparer when they need help with taxes.  This person would be trained and qualified to understand standard, complex, and newly released tax laws and codes.  Another option is for taxpayers to prepare taxes from home using a special computer program designed for this purpose.  With this, the taxpayer would not need any knowledge or experience with tax preparation.  Some programs such as Turbo Tax also provide a guarantee that if the individual filing taxes used their program but was audited they would offer free support, as well as take responsibility for some of the interest and penalties.

Anyone owing back taxes should understand that the Internal Revenue Service takes this very seriously.  While the taxpayer could come up with a plan to get the taxes paid, one of the best solutions is to work with this agency.  The IRS offers numerous repayment plans that provide protection.  Otherwise, if a plan were not created to pay the back taxes, serious consequences could be expected.  When you consider that President Obama is now talking about cracking down on people that do not pay taxes, it is expected ramifications will eventually be harsher.

For someone owing back taxes that has not worked with the Internal Revenue Service to implement a repayment plan, this person could be faced with an assessment, levy, lien, or even jail time.  Remember, the IRS wants their money but they know that putting people in jail means stopping them from making money, which is not the preferred route.  For this reason, the Internal Revenue Service will do whatever possible so an acceptable plan is devised to create a win-win situation for both parties.

We wanted to address the specific consequences that go along with owing back taxes so people can understand of how important it is to pay taxes on time, ask for an extension to pay if needed and if behind, work with the Internal Revenue Service in creating a workable repayment plan.  Within the IRS tax code are four specific provisions, which are listed below:

1.    Assessments – If a tax return is filed, an assessment can be fixed.  In this case, the IRS would generally estimate the amount of the tax liability, followed by sending the taxpayer a proposed assessment.  However, sometimes the Internal Revenue Service will even file a return on behalf of the taxpayer.  Remember, proposed assessments can be reduced or altogether eliminated once the tax return is filed.

2.    Time Restrictions – Another one of the tax codes is that the amount of time allowed for the taxpayer to receive a refund, for the IRS to collect back taxes, and for a tax return to be audited is restricted.  Anyone owing back taxes should take time to learn about the Statue of Limitations, which would help in developing the appropriate strategy.

3.    Interest and Penalties – The next tax code is that the Internal Revenue Service is given authority to charge interest or impose penalties on any back taxes, no matter the amount.  Both interest and penalties are calculated using a specific formula, which should also be researched by the taxpayer.

4.    Confidentiality – Most people that owe back taxes are not proud of the situation and many worry that family members, friends, or co-workers will somehow find out.  However, the tax code is very specific that taxpayer’s information is 100% confidential.  By law, this government agency is never permitted to share information and in fact, the department within the Internal Revenue Service that handles back taxes cannot even share information with another department inside the Internal Revenue Service.

Finally, if a person owes back taxes, the worst thing he or she could do is ignore them, hoping that magically, the problem will go away.  Instead, the taxpayer should work with an agent from the Internet Revenue Service so repayment of money owed could be outlined and the monies paid.