How to Qualify for a Mortgage With Unfiled Tax Returns

Most lenders won't give you a mortgage if you have unfiled tax returns, but it can be possible if you work with an alternative lender. Generally, the best option is to file your tax returns, set up payment plans on unpaid taxes, and get tax liens removed before you start the loan process. To help you out, this guide explains why most mortgage lenders require tax returns, options for getting a loan without tax returns, and what to do if you have unfiled returns and want to buy a home.

Key takeaways

• Mortgage lenders use tax returns to verify your income.
• You cannot get FHA, USDA, VA, or Fannie Mae/Freddy Mac loans without a tax return.
• Some alternative lenders may work with you – expect higher down payments and higher interest rates.
• For the best loan terms, file old tax returns before applying for a mortgage.
• Making installment payments on your tax debt will not stop you from getting a mortgage.

Why Mortgage Lenders Ask for Your Tax Return

A mortgage is the biggest loan most people will ever take out, and your lender needs to feel confident that you can repay this large sum of money. To learn about your financial situation, the lender looks at your proof of income, tax returns for the last year or two, credit report, and other financial documents. 

You may send your tax returns directly to the lender, or they may use the Income Verification Express Service to get your information from the IRS. If you cannot provide this information, most lenders won't approve your mortgage application.

Underwriting Rules for for Most Mortgages

The majority (70%) of mortgage loans in the United States are underwritten by Fannie Mae or Freddie Mac. You must provide a tax return to obtain either of these loans, but if you apply between April and October, you may be able to use last year's tax return as long as you have proof that you filed an extension and paid any estimated quarterly tax for the year. The Federal Housing Administration (FHA), the United States Department of Agriculture (USDA), and the Department of Veteran Affairs (VA) offer government-backed loans with looser financial standards than conventional mortgages, but these loans also require tax returns. 

Mortgages You Can Get Without a Tax Return

A very small handful of lenders may be willing to give you a no-tax-return mortgage which is sometimes referred to as a no-doc or low-doc mortgage. They generally fall into the following two categories:

Institutional No Tax Return Mortgage Lenders – These lenders take a close look at your income documents and your bank account statements. Because they work with high-risk clients, they typically charge higher interest rates than other lenders. If you get a no-tax-return mortgage, you should expect to pay 10 to 20% or more as a down payment. 

Asset-Based Mortgages – If you have a lot of near-liquid assets (low-risk stocks, bonds, etc), you may be able to get a mortgage based on the value of your assets. These loans are sometimes called asset depletion loans. The loan is set up as if your annual income is the total of your assets divided by the term of the loan. For example, if you have $1 million, that equates to $50,000 per year over a 20-year loan.

Owner-Carry Mortgage Lenders – This is when you make payments directly to the property owner. Because these loans are handled between individuals, they don't have the same stringent requirements as traditional mortgages. Owner-carry loans can be useful in some situations but risky or even predatory in others. Keep in mind that many owner-carry arrangements come with a balloon payment.

You make monthly payments for anywhere from a year to a decade. Then, you have to pay off the remaining value of the property in a lump sum called a balloon. To cover the balloon payment, you typically have to go to a traditional lender, and you may struggle to obtain a loan if you have unfiled returns. Consult with an attorney or realtor before taking out this type of loan.

What to Do If You Want a Mortgage and Have Unfiled Returns

If you're ready for homeownership but have unfiled returns, you can explore the options above, but they will likely cost you more money in the long run. The best option is to deal with your unfiled tax returns. 

• Gather your documents and do your tax returns – If you hire a tax pro, they will easily be able to get your income documents from the IRS to complete your tax return. If you are self-employed, however, you will need to dig into your bank statements, sales reports, and other financial documents to put together the numbers.
• Complete the last six years of returns – Regardless of how far behind you are, you generally only need to do the last six years to get compliant with the IRS, and the mortgage lender will typically want to see the last year or two.
• Request penalty relief – When you file your delinquent returns, you will incur penalties. Ask the IRS for penalty abatement to reduce the total amount you owe.
• Set up payment plans if you owe taxes – If your tax returns show tax due, make sure to set up a payment plan as soon as possible. The lender will consider your monthly tax payments along with any other debt payments when looking at your debt-to-income ratio.
• Address tax liens – If the IRS has issued a tax lien against you, ask them to remove it. If you owe less than $50,000, they will generally remove tax liens once you make three monthly payments on an installment agreement. If you owe over $50,000, you may need to get the lien subordinated before you can get a mortgage.
• Work on your credit score – While dealing with your unfiled tax returns, also take steps to improve your credit score. Pay down credit card debt and contact the credit bureaus if there are any mistakes on your report. The higher your score, the better your loan terms will be.
• Save up a downpayment – A big downpayment can help improve your chances of success, but if that's not possible, stick with FHA, USDA, or VA loans which all have low downpayment requirements.

Remember in some cases, filing old tax returns can put money into your pocket. If you have a refund, you can claim that three years after the filing due date. That can help you with your downpayment and also offset taxes you may owe for other years.

Can You Obtain a Mortgage If You Have Unpaid Taxes?

If you file your returns and owe tax, that won't necessarily prevent you from qualifying for a mortgage. However, your mortgage lender will want to see proof of your payment arrangement, and they will take these payments into account when calculating your debt-to-income (DTI) ratio. The DTI requirements vary from lender to lender, but typically, you should aim for 36% or below. That means that 36% of your monthly income goes toward debts including your tax repayments, student loans, car loans, your mortgage, and any other debts you have.

Most mortgage lenders want to see that you've been making payments for a few months. If you're in the first or second month of your installment agreement, you may want to wait a bit before applying. Don't be afraid to ask the loan officer about your situation — they deal with all kinds of borrowers, and they can give you advice on what to expect during the home-buying process if you have unpaid taxes.

Applying for Mortgages When You Have a Tax Lien

The IRS can also place a lien on your assets if you have unfiled returns. When you don't file your returns, the agency can assess how much you might owe and send you a bill. Usually, this bill is more than you actually owe, and if you don't respond, the IRS can issue a tax lien. Sometimes, even if you set up a payment arrangement, the IRS will still place a lien on your assets.

A lien is the government's legal claim to your assets. If you sell assets while a lien is in place, the government has the right to take the proceeds of the sale. For best results, you should work with a tax pro to get the lien removed. If the IRS refuses to remove the lien, you may need to get it subordinated. By subordinating the lien, the IRS agrees that your mortgage lender has priority if your property ever goes into foreclosure.

Get Help Applying for a Mortgage When You Have Unfiled Returns

If you have unfiled returns, unpaid taxes, or a tax lien, homeownership can still be possible, but you will need to jump through a few extra hoops before you sign the mortgage and get your new home. For best results, you should contact a tax pro to help you. They can help you file returns, set up payment plans, or deal with tax liens so that you can confidently apply for a mortgage. 

Don't let tax issues stop you from becoming a homeowner. Instead, get help today. Search our directory to find a tax pro in your local area who is experienced with these issues. You can use the search box below.

Louisiana: Consequences and Resolution Options for Back Taxes

The Louisiana Department of Revenue (LDR) collects income tax, sales tax, and other personal and business taxes in this state. If you owe back taxes, the LDR has the right to forcibly collect the amount due using wage garnishments, bank account levies, and assets seizures.

Contact the Louisiana Department of Revenue:

• Individual Inquiries: 1-855-307-3893
• Business Inquiries: 1-855-307-3893
• Collections Number: 1-855-307-3893
• Website: https://revenue.louisiana.gov/

But this doesn't mean you need to be scared about your Louisiana tax bill — the agency is willing to work with taxpayers and offers a number of resolution options. Here's what you need to know if you owe delinquent taxes in Louisiana.

Resolution Options for Louisiana Back Taxes

If you owe back taxes in Louisiana, you may be able to set up one of the following arrangements with the state. The right option depends on your tax bill and your financial situation. A Louisiana tax pro can help you decide what to do.

Payment Plan

The Louisiana Department of Revenue offers payment plans to qualifying taxpayers. Payment plans let you pay your tax bill in monthly installments, and the LDR allows you to take up to 36 months to pay off your bill. Businesses may be able to take longer.

To apply, individuals should use Form R-19026 (Installment Request for Individual Income Tax) and businesses should be Form R-19027 Installment Request for Business Tax). If you have a LaTAP online account, you can request a payment plan online. You can request more about Louisiana's state tax payment plan option here. 

Offer in Compromise

If you are unable to pay your tax bill in full, the state may be willing to settle for less than you owe. Typically, this option is only available if the state believes that your offer represents the most amount of money it is likely to be able to collect on your tax bill. You can read more details about Louisiana's State Offer in Compromise option here. 

To apply for an offer in compromise, individuals should use Form R-202121 (Offer in Compromise Application) and businesses should submit Form R-20212B (Statement of Financial Condition for Businesses).

Innocent Spouse Relief

You may qualify for innocent spouse relief under Louisiana Revised Statute 47.1584 if your spouse or ex-spouse was exclusively responsible for the tax liability. To get innocent spouse relief on Louisiana taxes, you must not have known and had no reason to know that your spouse failed to file a return or failed to pay tax. Or, you must have been physically or mentally coerced into silence.

Typically, you have to apply for innocent spouse relief within two years of the start of the collection actions. But if you apply after that window, you may still be able to get innocent spouse relief if the state feels that it would be unfair to hold you responsible.

Hardship Status

If you're experiencing financial hardship due to your Louisiana tax bill, the state encourages you to apply for an offer in compromise. The IRS has a hardship program (also called currently not collectible) where the agency will pause collection actions if you prove that you cannot afford to pay. Louisiana does not advertise a similar program.

Penalty Abatement

If the LDR has added penalties to your account, you can apply for a penalty waiver online using Form R-20128 Electronic Submission. Before applying, you must file all delinquent returns and pay all your state back taxes, interest, and penalties not included in the waiver request. The state will not waive penalties if you are behind on filing or payment obligations.

Interest Waivers

In very rare situations such as when the state caused an error or delay, the LA DOR may be willing to waive interest. You can request the state to waive the interest on your account using Form R-20130 (Request for Compromise of Interest).

Appeals Process

You have the right to appeal if you disagree with a Louisiana tax assessment. To apply, you should write out a petition explaining why you disagree with the assessment and outlining what kind of relief you want. Then, you should send it to the Louisiana Board of Tax Appeals (LaBTA).

Most appeals can be resolved without a hearing, but in some cases, you may have to attend a hearing with the LaBTA in person or over the phone. You have the right to represent yourself, but due to the complex nature of Louisiana tax laws, you may want to work with a tax attorney. Note that you must appeal by the date on your notice or you may lose your chance to appeal.

Consequences of Unpaid Louisiana Taxes

The LA DOR can use numerous tactics to collect unpaid taxes. If you want to avoid collection actions, you need to be proactive about negotiating an arrangement for your unpaid taxes. The sooner you contact the state, the better. Here's what can happen if you have delinquent taxes in Louisiana.

State Tax Liens

If you have unpaid LA taxes, the state can issue tax liens in any parish where you own real or personal property. A lien means that the lienholder has a right to the proceeds if you sell the asset. Liens can make it hard to sell or transfer assets, and they can also impair your ability to get a loan.

The state will only release the lien if you pay the tax in full, and the state will add the cost of recording the lien to your tax bill. To get a pay-off amount and request a lien release, file Form R-19023 (Request for Louisiana Tax Assessment & Lien Payoff). Generally, the state takes four to five business days to respond to the request for a payoff amount. If you need information faster, you can fax your request to the Special Collection Unit at (225) 219-2256.

In some cases, the LDR may place liens on multiple properties. If some of these properties cover the full amount of your tax liability, you can request a partial lien release to have the state remove excess liens from your other properties. The LaBTA must approve these requests.

Tax Levy

The LDR has the right to seize stocks, securities, bank accounts, wages, real estate, and all other types of property if you have unpaid tax liabilities, penalties, or interest. Generally, the state only takes wages and bank accounts, but it has the right to take nearly all of your personal or real property.

If the state garnishes your wages, it can take up to 25% of your pay. Typically bank account seizures are for the full amount in your account, up to the amount owed.

Tax Penalties Charged

The LDR assesses penalties and interest if you file or pay your taxes late. If you file your return late, Louisiana assesses a failure-to-file penalty of 5% of the balance due. This penalty applies immediately, and another 5% penalty applies every additional month, up to a maximum penalty of 25%.

The state also assesses a failure-to-pay penalty. For individual income tax, the penalty is 0.5% of the tax due every month, up to 25%. For all other taxes, the late-payment penalty is 5% of the amount due every month, up to 25%.

As you can see, the failure-to-file penalty is much higher than the failure-to-pay penalty on individual taxes. To minimize your penalties as much as possible, you should always file your return on time or as close to on time as possible, even if you cannot afford to pay the tax due.

Note that requesting an extension only extends the amount of time you have to file. It does not extend the due date for your tax return.

Interest on Louisiana Back Taxes

As of 2022, the interest rate on unpaid Louisiana state taxes is 0.5417% per month or 6.5% per year. The rate adjusts annually.

Seizing State and Federal Tax Refunds

When you owe back taxes to Louisiana, the state can take your IRS tax refunds through the federal offset program. Similarly, if you owe federal back taxes, the Louisiana Department of Revenue will send your state refund to the IRS.

Refusing to Let You Have a Driver's License

The State of Louisiana may revoke, refuse to issue, or deny the renewal of your driver's license if you owe more than $1,000 in state taxes. To get your driver's license back, you must pay the tax due or set up a payment plan. If you have not filed the return related to the tax due, you also must file the return.

Once you meet the requirements, the state will send you a clearance letter. To get your license back, take the letter and a $60 reinstatement fee to the Department of Public Safety.

Taking Your Hunting License

If you owe more than $500 in Louisiana taxes, penalties, and interest, the state also has the right to take your hunting licenses. When you go to apply for a hunting license, the state will reject your application if you have a final determination for more than $500 in unpaid state taxes.

Get Help With Unpaid Taxes in Louisiana

The state of Louisiana has a lot of power to collect unpaid taxes, and even if you only owe $1,000, you risk losing your driver's license and facing other serious collection actions.

To protect your assets, you should work with a tax professional who is experienced in dealing with the LDR. They can look at your situation, help you identify the best resolution option, and negotiate with the LDR on your behalf. To get help, search for a LA state tax pro using TaxCure today.

Tennessee Department of Revenue: Offer in Compromise

An offer in compromise is when the Tennessee Department of Revenue (TDR) lets you pay off your tax liability for less than you owe. 

The TDR typically only accepts offers if it believes they represent the most money the agency will be able to collect over the next three to five years, and offers tend to be the most successful when the taxpayer shows a good faith effort to pay the tax liability and adjust their lifestyle to stay on top of future tax bills. 

To help you understand the process, this guide explains how to apply for an offer in compromise in Tennessee and what to expect as you wait for your offer to be reviewed. 

Qualifications for an Offer in Compromise in Tennessee

To qualify for an offer in compromise in Tennessee, you must meet the following conditions:

• Not involved in an open or active bankruptcy case.
• Filed all required tax returns and reports.
• Fully completed the offer-in-compromise application.
• Provided all supporting documents.
• Responded to all requests for additional information.

The TDR looks at each application individually, but it pays close attention to your ability to repay the tax liability now and in the future. In addition to looking at your income, expenses, assets, and liabilities, the agency also considers the potential for change and your likelihood of complying with tax laws in the future. 

How to Apply for an Offer in Compromise in Tennessee

To apply, you need to fill out the Offer-in-Compromise Application and submit it to the TDR. The application is 25 pages long, but it includes detailed instructions and everything you need to disclose your personal or business financial situation fully. 

Individuals must include Form CS-14B (Statement of Financial Condition for Individuals), while businesses should use Form CS-14C (Statement of Financial Condition for Businesses). Self-employed people and business owners must submit both of these forms.

How to Structure Your Offer in Compromise

The offer-in-compromise application requires you to note how much you are offering to settle your tax liability. Here are your options:

• Make an offer and include payment for the full offer
• Make an offer, include a downpayment, and agree to pay off the balance in 30 days.
• Make an offer and agree to make monthly payments of a certain amount over a three to five-year time frame.

If you include a payment, the state will keep the payment even if it doesn't accept your offer. 

How Much to Offer for a Tax Settlement in Tennessee

So, how much should you offer to settle your tax bill? Tennessee applies a very straightforward formula to offers in compromise for both businesses and individuals, and you can use this formula to guide you to an offer. After taxes, the state takes your monthly disposable income, multiplies it by 60, and adds that amount to your total equity. 

Here's an example. Imagine you have $200 per month left over after expenses, and you have $5,000 in equity. When you multiply $200 times 60, you get $12,000, and adding $5,000 brings you to $17,000. In this case, the TDR assumes that it can collect $17,000 over the next five years, and it may not accept an offer below this amount.

It's important to note that the TDR may not take all your expenses into account. If you send in an application that shows you have just $100 in disposable income per month, the state may decide that some of your expenses aren't valid, and it may claim that you have more disposable income every month.

Information Required on the Offer-in-Compromise Application

When making an offer in compromise, you must include your personal or business tax numbers and contact info, monthly income or revenue, monthly expenses, assets, liabilities, and dependents. 

You also must note if you have made an offer of compromise to the Internal Revenue Service (IRS) and answer questions about the following:

• If you have disposed of assets in the last 18 months.
• If there are foreclosure proceedings on any real estate you own.
• If anyone is holding assets for you.
• If you're a party to a pending lawsuit.
• If you're likely to receive an inheritance in the next four years.
• If you've asked for an offer in compromise in the past.
• If you or your business are currently in bankruptcy.
• For business-related taxes, if the business has been discontinued.

Documents to Include With Your Offer in Compromise

When you make an offer in compromise in Tennessee, you need to include the following supporting documents with your application:

• Income tax returns for the last two years.
• Bank statements from all accounts.
• Credit and merchant card statements.
• Utility bills.
• Insurance statements.
• Life insurance statements with details about cash value, accumulated dividends, interest, and loans against proceeds.
• Statements from retirement accounts, investments, pensions, etc.
• Current credit report.
• Proof of employment.
• List of all assets.
• Accounts receivables for your business with the payor, account status, and account age.
• Profit and loss statement for your business for the last six months.
• List of all liens and judgments against you and your business.
• Statement of all IRS tax bills and proof of payment plans.

You also need to make a statement explaining how you incurred the tax liability and why you need a compromise. 

For example, if your rent or mortgage is $2,000, that exceeds the amount allowed for a single person, and if you want the TDR to consider this amount rather than the standard housing allowance, you need to explain in detail why this is a reasonable expense in your situation. 

What Happens While TDR Reviews the Offer?

Submitting an offer in compromise does not stop the collection activity on your account, and if you're making installment payments, it doesn't change the terms of your payment plan. If you want to stop collection activities, you may want to set up a short-term Installment Payment Agreement (IPA) while the TDR reviews your offer, but even if you set up a payment plan, the TDR can still file a state tax lien. 

Making an offer in compromise does not change the deadline for requesting an informal conference or filing a suit to challenge a proposed tax assessment. If you disagree with a proposed assessment, you still need to request an informal conference or submit a suit by the deadline noted on the assessment. 

Tennessee Offer-in-Compromise Review Process

The Collection Services Division consults with legal counsel to decide if your offer is in the state’s best interest. Then, it makes a recommendation of acceptance or denial. The Commissioner of Revenue makes the final decision on most offers, but the Attorney General and Reporter and the Comptroller of the Treasury must approve some offers.

The TDR will notify you by mail if your offer has been recommended for approval or rejection, and then it will also let you know when the final decision has been made. 

What Happens If Your Offer Is Accepted?

If your offer is accepted, you must pay the balance of the settlement as outlined in your offer. You must also stay compliant with tax reporting, filing, and payment obligations for the next five years, or your compromise will be voided, and you will owe the full amount. If a state tax lien has been filed against you, the DOR will release the lien once you have satisfied the terms of your offer — the release shows that you no longer owe the tax and the lien is no longer attached to your assets, but the record of the lien may still continue to exist.

What Happens If Your Offer Is Rejected?

If the TDR rejects your offer in compromise, the TDR will typically offer you a payment plan, and although you cannot contest the rejection, you can suggest an alternative payment plan. 

Common reasons for rejecting offers in compromise include the following:

• The TDR believes you can pay more.
• You have omitted serious information from the application.
• You have a history of non-compliance or fraud.
• The tax is based on amounts you collected from customers and never remitted to the government — for instance, state sales tax.

Tennessee Offer in Compromise Based on Legal Argument

An offer in compromise based on a legal argument applies when you request an offer in compromise because you believe that you do not legally owe the taxes. In this situation, you need to submit a written statement about your legal argument, but you do not need to fill out the application or provide financial disclosure. 

Get Help Applying for an Offer in Compromise in Tennessee

Applying for an offer in compromise can be a tricky process, and for best results, you need to include the right information and detailed explanations about your situation. Ideally, you should work with a tax professional who understands how this state handles the process.

To get help with tax issues in Tennessee, contact a tax pro with experience negotiating with the TDR. 

Payment Plan for Colorado Back Taxes

In Colorado, you may be able to set up a payment plan to repay delinquent taxes in monthly installments. Here is an overview of payment plans on back taxes in Colorado.

How to Set Up a Payment Plan for Individual Taxes Online

Individual taxpayers can apply for payment plans online. Simply set up an online account with the Colorado Department of Revenue and follow the prompts to request a payment plan. 

To set up an online account, you will need to confirm your identity with one of the following: 1) your most recent tax return, 2) your federal taxable income amount, 3) your refund amount, or 4) an ID number from a letter received from the Colorado DOR.

Once you have created an online account, follow these steps to request a payment plan:

1. Log into your Colorado Revenue Online account.
2. Click "additional actions" in the account box.
3. Chose "set up a payment plan.”
4. Select the date you want your payment plan to start — it must be 30 to 60 days from the current date.
5. Decide if you want to base your monthly payment on the amount you can afford or the number of installments you want to make. The system gives you both options, calculating your payment based on your response. The minimum monthly payment you can select is $25, and the system will show you the maximum length of time you can take to repay the bill.
6. Choose if you want to make your payments automatically with direct debit or ACH, manually online, or through the mail. 
7. Click the box that says you agree with the proposal. 
8. Enter your bank details if you want to set up automatic payments. 
9. Save your payment confirmation number or print a copy for your records. 

Remember, this is just a request. Completing the online application is not a guarantee of your payment agreement. The CO DOR will contact you to let you know if your plan was approved.

How to Request a Payment Plan on the Phone

Alternatively, you can request a payment plan over the phone. Call the Collections Section at (303) 205 8291. When you call, the collections rep will talk with you about your outstanding tax bill and your financial situation. Then, they will give you an overview of your options. 

How to Set Up a Payment Plan Over Email

You cannot set up a payment plan on Colorado taxes over email. However, you can email the DOR with questions about payment plans. Contact the agency at DOR_Compliance@state.co.us. 

How to Set Up a Payment Plan for Business Taxes

You may be able to set up a payment plan on sales tax or wage withholding tax for your business. But, you must contact the CO DOR directly. To request a payment plan for Colorado business taxes, contact a compliance agent at (303) 866-3711 Monday through Friday, 8:00 am to 4:30 pm. 

The state will only let you make a payment plan request for business taxes if you have received a bill. Additionally, you cannot be in an active bankruptcy case, and you must have filed all required tax returns. 

When Can You Set Up a Payment Plan

You can request a payment plan on your current year's taxes any time after April 15. For example, you can request a payment plan for your 2021 Colorado state taxes any time after April 15, 2022. 

If you know that you cannot afford to pay your Colorado taxes in full, you should set up a payment plan as quickly as possible. If the state garnishes your wages or seizes your assets, you typically cannot reverse those actions by setting up a payment plan. 

What to Expect When You Have a Payment Plan

If you set up a payment plan, interest will continue to accrue on your balance. The CO DOR will also keep any state tax refunds until your balance is paid in full. 

When the CO DOR keeps your refunds and applies them to your balance, those amounts are not a substitution for your monthly payment. You must continue to make payments as outlined in your plan. 

While you are on a payment plan, the DOR may still send you a Final Notice of Determination and Demand for Payment. Don't worry — as long as you're making payments, the state will not take any new collection actions. 

However, to ensure the state has a record of your payment plan, look at the Statement of Account. This document should be included with the Final Notice, and it should show you which of your debt is in a repayment plan. If you don't see that information, you should reach out to a tax professional or contact the DOR directly to make sure your payment plan is recorded. 

Reasons for Payment Plan Cancellation

If you don't maintain the terms of your agreement, the CO DOR can cancel your payment agreement. You must satisfy the following terms to keep your payment plan valid:

• Sign and return the waiver with your payment plan paperwork.
• Make the full monthly payment on time. 
• File all tax returns.
• Pay all tax due.
• Provide a complete statement of income and expenses if requested.
• Update your address if you move.

To make sure your payment reaches the DOR on time, mail the payment at least ten days before the due date. If you're paying online, remit the payment two days before the due date. 

If the state decides to cancel your payment plan, the CO DOR will notify you in writing. Failure to meet these terms is considered a violation of your agreement. However, if you cannot afford to pay your tax bill, you may be able to roll your existing tax bill into your payment plan. You can use Revenue Online or call the DOR to make this request. 

What If You Can't Afford to Pay Your Colorado Tax Payment Plan

If you cannot afford to make the payments on your payment plan, you can request new terms. Send your request along with DR 6596 (Statement of Income and Expenses) to the CO DOR. You must continue to make payments during the review process. 

You can also use this form to request different payment terms if you cannot afford the CO DOR's proposed payment plan. Form DR6596 provides the CO DOR with a very detailed analysis of your financial situation, and if you are experiencing financial hardship, this form will prove your situation to the state.

In rare circumstances, the CO DOR may consider an offer in compromise. An offer in compromise allows you to settle the taxes you owe for less than the total amount. Before applying for a Colorado offer in compromise, you must first get an offer in compromise accepted with the IRS for the same period and the same type of taxes.

Get Help Setting Up a Colorado Payment Plan

Can't afford to pay your Colorado taxes in full? Then, a payment plan may be the best option. Contact a Colorado tax pro today to help set up a payment plan or explore other options for your back taxes. You can view the top-rated Colorado tax problem professionals here.

Offer in Compromise on Colorado State Taxes

In rare situations, the Colorado DOR allows taxpayers to settle their tax liabilities for less than they owe through the offer-in-compromise program. To qualify, taxpayers must meet strict criteria. 

Here's an overview of the Colorado offer-in-compromise program and an explanation of what to expect if you apply.

How to Apply for an Offer in Compromise in Colorado

Before applying for an offer in compromise in Colorado, you must apply for an offer in compromise with the IRS. The CO DOR will not accept an offer in compromise unless the IRS has already accepted an offer for the same period and the same type of tax. 

Once the IRS accepts your offer, you will need to send copies of your IRS application materials and several additional documents to the state. Here is what you need to send to the CO DOR:

• IRS Form 656 stamped with the IRS Received Date. 
• IRS Form 433-A (Collection Information Statement for Wage Earners and Self-Employed Individuals)
• Proof that the IRS accepted an offer-in-compromise proposal on your federal taxes.
• Proof that you paid your IRS offer in compromise.
• A Record of Account from the IRS.
• CO DOR Form DR 6596 (Statement of Income and Expenses).
• A written statement describing any special circumstances about your offer.
• Written disclosure of any real or personal property you've transferred, including vehicles, cash, and property title transfers.
• Marital and filing status.
• Signed copy of the Offer in Compromise of Tax Liability Terms and Conditions — note that you must initial every term on this form in addition to signing at the bottom. 

You should also include any other relevant information from the offer in compromise accepted by the IRS. The state has the right to request additional details as needed. 

Qualifications for a Colorado Offer in Compromise

The CO DOR will only consider accepting an offer in compromise if the following conditions have been met:

• You have filed all required tax returns.
• The IRS has accepted an offer in compromise for the same year and tax type. 
• You have not used the Colorado offer-in-compromise program before. 
• You have not discharged tax liabilities through bankruptcy in the past. 
• You have not had state taxes written off due to the expiration of the statute of limitations. 
• You have not previously received innocent spouse relief. 

Most importantly, you must prove to the state that you cannot afford to pay all of your outstanding tax delinquencies. The DOR will require you to submit detailed financial information. Still, the DOR also has the right to review the documents you submit and perform an independent examination of your financial situation. 

While the state is reviewing your offer, it will continue any collection actions it has initiated on your account, but typically, the CO DOR will not start any new actions. For example, if your wages are being garnished, the garnishment will stay in place while the state reviews your application. 

Acceptance of Colorado Offer in Compromise

The CO DOR will notify you in writing if your offer is accepted. At that point, you must pay the full offer within 15 days of the date on the notice. If you don't make the payment on time, the offer will be rescinded. Similarly, if your check doesn't clear, you will also lose your offer. 

The state will keep any tax over-payments and apply them to your balance for the next three years. During this time, you are not allowed to reduce your quarterly estimated payments or the amount of withholding. 

Denial of Colorado Offer in Compromise

If the state denies your application, your tax liability is due in full. You should make other arrangements such as a payment plan as soon as possible. Failure to make arrangements on your Colorado tax bill can lead to wage garnishments, asset levies, and other collection activity. 

Offer in Compromise on Colorado Sales Tax

Generally, you cannot get an offer in compromise on Colorado sales tax. As indicated above, the CO DOR only accepts offers if the IRS has accepted an offer for the same type of tax during the same tax period. As the IRS has nothing to do with sales tax, that means that sales tax automatically doesn't meet this criterion. However, you may be able to get your sales tax bill reduced by asking for a penalty waiver. A tax pro can help you understand more about the situation. 

Get Help With a Colorado Offer in Compromise

Applying for an offer in compromise can be a complicated process, and even a small mistake can cause the state to rescind your offer. Consider working with a tax professional to improve your chances of being accepted.

At TaxCure, you can search for tax pros who have experience dealing with the CO DOR. Contact a Colorado tax pro today to get help applying for an offer in compromise or to talk about other options.

Tennessee Department of Revenue Payment Plans

If you have unpaid taxes in Tennessee, you may be able to qualify for a payment plan. The state offers payment plans for individual income tax, corporate income tax, sales tax, and other taxes. The exact rules may vary depending on the tax you want to make payments on. An Installment Payment Agreement (IPA) allows you to pay off your tax liability in equal monthly payments over a set period of time. Still, you must meet certain criteria to qualify. Take a look at how tax payment plans work in Tennessee. 

How to Qualify for a Tax Payment Plan in Tennessee

To qualify for an installment plan, you must meet the following criteria:

• Owe at least $300
• Agree to make monthly payments of at least $50
• Set up direct debit for the payments
• Be able to pay off the tax liability in two to 60 months

You also must submit an application that includes a detailed analysis of your financial situation. If you have a business, you must keep your daily records current and submit all tax returns and reports as required to the TDR. If you cannot afford the monthly required payments then it may be possible that you could qualify for an offer in compromise with the Tennessee DOR.

What to Expect With a Tax Payment Plan in Tennessee

If you have a payment plan, your tax liability will continue to accrue interest, but it will not incur any more penalties. As of October 2021, the state charges 9.25% interest on payment plans accounts. Note that because the interest rate is so high, you may want to consider obtaining a bank loan to pay off your tax bill instead of requesting a payment plan through the state. 

If you have a payment plan, the state will not impose any tax levies such as wage garnishments or asset seizures, but the TDR may still file a lien against your assets. Late payments violate the terms of your IPA, and the TDR has the right to demand full payment plus interest and penalties if you don't make your payments on time. 

If you pay off your tax liability, make sure to cancel your automatic payment at least five days before it is scheduled and contact the IPA Unit directly to cancel future withdrawals. 

How to Apply for a Tax Payment Plan in Tennessee

You can apply for a payment plan online at the Tennesse Taxpayer Access Point (TNTAP), or you can fill out an Installment Payment Agreement Application and email it to Payment.Plan@tn.gov.

If you have had two or more payment plans in the last two years, you must submit a 25% downpayment with your application, or the TDR will not consider your request. For instance, if you request a payment plan on a $10,000 tax bill and you've already had two payment plans in the last two years, you need to include a downpayment of at least $2500.

How to Fill Out the Request for a Payment Plan

The installment plan request requires your name, address, Social Security Number or Employer Identification Number, the legal structure of your business, the type of tax, and the tax period. You also must include a written explanation of why you need an installment agreement. 

Individuals and self-employed applicants must also include Form IPA-IND (Financial Condition Statement for Individuals). Similarly, corporations and partnerships must submit Form IPA-BUS (Financial Condition Statement for Business), and corporate officers and partners may also need to provide Form IPA-IND. 

Financial Statement for Tennesse Tax Payment Plans

Whether you're a business or an individual, the financial condition statement gives the TDR an overview of your financial situation so the agency can decide whether or not to approve a payment plan. The IPA-IND requires individuals to provide the following details:

• Name and contact information
• Marital status
• Year of last filed federal return
• Adjusted gross income from your last federal return
• Employment info
• Dependent's info, including their monthly income
• All assets, including bank accounts, stocks, retirement accounts, life insurance, antiques, and collectibles
• All liabilities, including credit cards, past-due taxes, vehicle leases, etc.
• List of income and expenses

You also must disclose if you have disposed of any assets in the last 18 months, if you have a foreclosure against any real estate, if anyone is holding assets for you, and if you or your business is a party to a lawsuit or currently under bankruptcy. 

Businesses must include the same details on their IPA-BUS. They must also disclose info about machinery and equipment, merchandise and inventory, accounts receivables, and loans to owners or partners.

Supporting Documents to Include With Payment Plan Application

If you're submitting a payment plan request with the state, you also need to include the following supporting documents:

• Copy of most current personal and business federal income tax returns.
• Bank statements for the last two months.
• Statements from lenders.
• List of business equipment plus fair market value. 
• Accounts receivables records showing payor, the amount due, age of the account, and status.
• Proof of employment for you and your spouse.

If your spouse is not liable for the tax liability, their income will not be considered when determining the amount of your monthly payments. Still, their income can affect the distribution of your living expenses. In other words, you won't get credit for paying all your living expenses if your spouse's income indicates that they can cover some of your shared living expenses. 

Get Help Setting Up a Payment Plan

At TaxCure, we have curated a database of tax professionals from around the country who are ready to help with your tax issues. If you owe individual or business back taxes in Tennessee, you need help from a tax professional who understands the laws in this state and how to negotiate with the TDR. To get help, contact a tax pro today.

Colorado: Tax Options & Consequences of Back Taxes

The Colorado Department of Revenue collects personal income tax and business taxes in Colorado. If you don't file your return or pay your taxes, the DOR will issue a bill and start collection action on your account. 

The CO DOR may also refer your bill to a third-party collection agency. As of 2021, BC Services, based in Longmont, Colorado, and Integral Recoveries, Inc, based in Englewood, Colorado, are the collection agencies used by the DOR. If the Colorado DOR places your delinquent taxes with these agencies, you must work with them to take care of your outstanding liability. 

Here's an overview of what to expect if you owe back taxes in Colorado. 

Contact Information for Colorado Department of Revenue:

• Individual Tax Inquiries: (303) 205-8291
• Business Tax Inquiries: (303) 205-8291
• General Information: (303) 238-7378
• Compliance Division: (303) 866-3711
• Collections: (303) 205-8291
• Colorado DOR Website: https://cdor.colorado.gov/

Resolution Options for Colorado Back Taxes

The Colorado DOR has the following options available to people and businesses who cannot pay their taxes. You must apply and get approved for these programs. There is no automatic relief on back taxes.

Payment Plan

Individuals and businesses may qualify to pay back taxes on a payment plan. Individuals can apply online, but businesses need to speak with a compliance agent. 

You must pay at least $25 per month, and the amount of time you can take to pay off the liability varies. While you're on a payment plan, interest will continue to accrue on your balance, and the state of Colorado will keep your state and federal tax refunds and apply them to your balance. 

Offer in Compromise

Colorado's offer-in-compromise program allows you to pay off your tax bill for less than you owe. To qualify for an offer-in-compromise in Colorado, you must first apply and be accepted for an offer-in-compromise from the IRS for the same tax year. 

You also must meet other strict criteria and provide the state with detailed information about your financial situation. In most cases, the IRS and the Colorado DOR will only accept an offer if it represents the most money the agencies are likely to be able to collect from you.

Innocent Spouse Relief

Both taxpayers are responsible for the tax when you file as married filing jointly. But in rare cases, you may qualify for innocent spouse relief if you can prove that you should not be liable.

To obtain innocent spouse relief in Colorado, you must first obtain relief on your federal tax bill. Use Form 8857 to request innocent spouse relief from the IRS. If the IRS accepts your request, the Colorado DOR will also accept your request, but you need to send in paperwork. The process is not automatic.

To apply for innocent spouse relief in Colorado, send a request and a copy of your determination from the IRS to the following address:

Colorado Department of Revenue 
Innocent Spouse Desk, Room 240
PO Box 17087
Denver, CO 80217-0087 

Hardship Status

The Colorado Department of Revenue does not offer hardship status to delinquent taxpayers, but if you cannot afford to pay your tax bill, you have options. As explained above, you may qualify to reduce your tax bill through the offer in the compromise program. 

Alternatively, if you apply for a payment plan and cannot afford the payments, you can request lower payments. You just need to submit DR6596 (Statement of Income and Expenses). This form requires detailed information about your income, assets, and living expenses. If you can prove that you cannot afford to pay much, the DOR may be willing to accept very low payments on your account.

Penalty Abatement

Colorado does not advertise a penalty abatement program. But a tax professional may be able to help you contact the state and request to have the penalties removed from your account. 

Appeals Process

If the Colorado Department of Revenue makes changes to your tax return, you will receive a Notice of Deficiency or Rejection of Refund Claim. This letter will explain the protest process and the documents you need to provide. 

To file a protest, you must request a hearing with the Executive Director within 30 days of the mailing date of the notice. If preferred, you can request to file a written brief instead of having a trial. 

To protest Colorado taxes, write a letter with the following details:

• Your name and address.
• The source code from your letter. 
• Tax amount, tax type, and tax period. 
• A list of the elements you disagree with. 
• If you want to file a brief instead of having a hearing. 
• Your signature.

Then, you can mail your letter to the Colorado Department of Revenue or submit it through Revenue Online. Make sure to include a copy of the notice you received. 

Voluntary Disclosure

If you have unfiled income or business tax returns in Colorado, you may benefit from the state's voluntary disclosure program. A voluntary disclosure is where you come forward to the state about your unfiled returns and make arrangements to pay the taxes in a lump sum. In exchange, the state limits penalties and criminal exposure. 

Enforcement Actions for Colorado Back Taxes

If you owe back taxes, the DOR can use a range of different enforcement actions. Here are some of the collection actions that may occur when you have delinquent taxes in Colorado. 

Tax Liens

The Colorado DOR can file a judgment lien against your assets if you owe back taxes. A tax lien is the state's legal claim to your assets. It can attach to all your assets (real estate, vehicles, etc.), and you cannot sell the asset unless you pay the tax bill first.

The Colorado DOR will send a Notice of Intent to Issue Judgment/Lien to your last known address. To stop the lien, you must pay your tax bill within ten days of the date of the notice. 

You must pay certified funds such as cashier's checks or money orders. To ensure your payment is credited in time, you should not mail it. Once a lien is in place, it can be challenging to remove. 

Tax Levy 

A tax levy is when the Colorado DOR seizes your assets to cover your unpaid taxes. The state may seize bank accounts, property, and wages. In Colorado, a wage garnishment tends to be the most common type of levy. 

The DOR will send a letter notifying you that they will garnish your wages. You have 30 days to pay your tax bill in full or make arrangements to resolve the liability. If you have received this letter, you need to contact a tax pro or reach out directly to the DOR. 

Once the wage garnishment is in place, the state will not remove it until you have paid your tax liability in full. You cannot set up a payment plan at this point. Additionally, if you make a partial payment, it will not stop or reduce the garnishment. 

Typically, wage garnishments are 25% of your disposable pay. Disposable pay is your pay after Social Security, Medicare, and taxes. For instance, if you make $1000 per week after taxes, the state will typically take $250 every week. 

If your wage garnishment is causing financial hardship, you can request to reduce the garnishment. You must send the following to the state: 

• Form 6596 (Statement of Income and Expenses)
• Form 6597 (Waiver of the Statute of Limitations)
• Copies of your most recent paycheck stubs
• Your spouse's paycheck stubs, if applicable
• Colorado income tax returns
• The fax number for the payroll department of your employer

With the first form, you provide the state with detailed information about your financial situation. With Form 6597, you agree to give the state more time to collect the tax. You may want to consult with a Colorado tax professional before submitting either of these forms. 

Tax Penalties Charged

If you do not file your income tax return or make your payment on time, the Colorado DOR will assess a penalty of 5.5% of the tax due each month or partial month, up to a total of 12%. If you owe less than $100, your penalty is $5 per month. 

For example, if you owe $1,000, the penalty for the first month will be $55. This penalty applies the very first day you are late. If you don't pay by the next month, you'll incur another $55 penalty, but your total penalty will not exceed $120. 

In Colorado, the penalties for paying sales tax, marijuana sales tax, cigarette tax, and other business taxes range from 10 to 30% of the unpaid tax. On top of that, the DOR also charges a flat penalty for failure to file certain business tax returns.

Common Colorado Tax Notices

The Colorado DOR sends many different notices to individual and business taxpayers. Here are some of the state's most common notices, along with a brief description:

• Notice of Deficiency — The DOR has made changes to your tax return, and you now owe a tax bill.
• Rejection of Refund Claim — The state had made adjustments to your return that prevented you from getting a refund. 
• Final Notice of Determination and Demand for Payment — Your tax liability is final. The state is demanding payment. 
• Statement of Account — The DOR generally sends a Statement of Account with the above notice. It shows how much you owe, payments made, and your account status. If you are in a payment plan, you will still receive the Demand for Payment, and the Statement of Account will show which of your tax liability is in the payment plan. 
• Notice of Intent to Issue Garnishment — This is a courtesy letter the DOR sends before notifying your employer of the garnishment. You have 30 days to make arrangements or pay the tax owed.
• Intent to Issue Judgment/Lien — You have ten days to pay your tax bill, or a lien will apply to your assets when you receive this letter. 

The Colorado DOR issues letters when you miss filing deadlines, don't file tax returns or have unpaid taxes. It also sends notices if it adjusts your return. 

Statute of Limitations on Colorado Taxes

The statute of limitations on Colorado taxes is six years from the latter of the date on which the tax was due, or the return was filed. If the failure to collect the tax was based on an error or omission from the government, the statute of limitations is just two years. In cases of tax fraud, there is no statute of limitations. 

Get Help With Colorado Back Taxes

Dealing with unfiled returns and back taxes in Colorado can be confusing and stressful. To ensure you get the best result for your situation, you need to work with a tax pro who's experienced with the Colorado DOR. To learn more, contact a Colorado tax pro today by searching or using the links below to navigate for local professionals.

• Colorado Tax Relief Professionals
  • Colorado Enrolled Agents
    • Boulder, CO Enrolled Agents
    • Colorado Springs, CO Enrolled Agents
    • Denver, CO Enrolled Agents
  • Colorado Tax Attorneys

New Jersey Consequences of Unpaid Taxes & Docket Judgements

If you have unpaid taxes in New Jersey, the state may use private collection agencies, liens, levies, and other collection tactics to claim its funds. The New Jersey Division of Taxation takes unpaid taxes very seriously, and ignoring your tax bill can lead to significant consequences.

If you have past due taxes (deficiencies) or unfiled returns (delinquencies) in New Jersey, here is what to expect.

New Jersey Tax Collection Process

The New Jersey Division of Taxation will try to contact you through the mail and phone if you have unpaid taxes. The division will refer your unpaid taxes to a private collection company if you don’t respond. 

Currently, the private collection company is Pioneer Credit Recovery. As of 2021, when the case is referred to the collection agency, a Referral Cost Recovery Fee of $10.75 is added to the tax liability.

Certificate of Liability (COD) in New Jersey

If you ignore the collection agency, a Certificate of Liability (COD) will be filed with the Clerk of the New Jersey Superior Court. Once the COD is filed, the case is returned to the State for further collection activity.

In New Jersey, a COD is a tax lien filed against you. A tax lien is the state's legal claim to your assets in relation to your unpaid tax liability. It secures the state's interest and carries the same effect as a Docketed Judgment. 

COD vs. a Docketed Judgment

A docketed judgment is a judgment entered in court. A tax lien, in contrast, is filed with the Clerk of the New Jersey Superior Court. Although the filing process is different, both COD and Docketed Judgments create an official notice of the lien against you. They both allow the state to take the next step to a levy. 

Bank Levies in New Jersey

Once a COD or Docketed Judgment is issued, the state will send a bank levy to your bank requesting that they forward the required amount to the state. By law, banks must comply with these orders. 

If your bank receives a levy notice from the state, it will put a hold on the funds, and it must send them to the state in a certain amount of time. 

How to Remove a COD in New Jersey

To remove a COD, you must pay the balance in full with certified funds. Paying the balance in full is also called satisfying the docketed judgment. The final payment may include interest and penalties, making it more than your original tax bill. You can contact the state to find your pay-off amount.

Judgment Payoff Request

To find out the amount of your judgment pay off, contact your assigned caseworker. If you don't have a caseworker, complete a Judgment Payoff Request Form. 

This form simply needs your name, address, and Social Security Number, as well as your lien or docket judgment number and the date filed. Then, you can submit it through email, fax, or mail.

• Email: judgments.taxation@treas.nj.gov.
• Fax: (609) 292-9614
• Mail: NJ Division of Taxation Judgment Section, PO Box 245, Trenton, NJ 08695-0245

Release or Subordination of New Jersey Tax Lien

Tax liens attach to your assets, and they can prevent you from selling or refinancing your assets. In New Jersey, you may be able to obtain a release or subordination of your tax lien if you can prove financial hardship. 

A release simply means that the state removes the tax lien. A subordination means that the state allows another creditor to claim first rights to the asset. 

For example, the state may attach liens to your motor vehicles if you have unpaid taxes in New Jersey. If you want to sell the vehicle to pay off your tax liability, you will need to request the lien removed. However, if you want to take out a loan against the vehicle and use it to pay off your taxes owed, the state will need to subordinate its lien to the new lender. 

To apply for a release or subordination of your tax lien, contact your caseworker or email the Judgments Unit at judgments.taxation@treas.nj.gov. There is no official form to request release or lien subordination in New Jersey. You may want to work with a tax professional to get help with this process. 

Statute of Limitations in New Jersey

New Jersey has a twenty-year collection statute as opposed to the IRS collection statute of ten years. This time limit gives New Jersey an extra decade to collect unpaid state taxes. This means that even if you have old IRS tax liabilities that have expired, your New Jersey tax bill from the same time period may still be active. 

Get Help With New Jersey Back Taxes

Don't let the New Jersey Division of Taxation issue COD, place liens on your vehicles, levy your bank account, or engage in other tax collection actions. Instead, contact the state and make arrangements now. 

New Jersey offers payment plans, closing agreements, and penalty abatement to taxpayers with unpaid tax liabilities. Contact a New Jersey tax professional today to get help with unfiled returns or unpaid taxes. They can help you deal with NJ taxes and get the best resolution for your situation. Charles Montecino, the author of this article and a CPA located in Pitman, NJ, has extensive experience resolving New Jersey tax problems.

South Carolina Department of Revenue: Offer in Compromise Program

Qualifying taxpayers can reduce their South Carolina tax bill with an offer in compromise. The South Carolina Department of Revenue (SCDOR) accepts offers in compromise on all individual and corporate taxes, except for sales and withholding taxes.

What's an offer in compromise? How can you reduce your state tax bill? An offer in compromise is when the state agrees to reduce your tax bill. Having an offer in compromise accepted can include removing penalties and reducing the tax bill itself. To use this program, you make an offer, and the SCDOR decides if it wants to compromise.

Qualifying for an offer in compromise is a tricky process, and for best results, you should consider working with a tax professional. They can help you apply, and if you're not eligible, they can direct you toward the best arrangement for your situation. Here's what you need to know.

Requirements for an Offer in Compromise in South Carolina

To qualify for an offer in compromise on South Carolina taxes, you must meet the following criteria:

• Owe at least $10,000.
• Be compliant with all current tax filing obligations.
• Made all current year withholding or estimated tax payments as required.

Additionally, the tax assessment cannot be related to a criminal investigation. If you have unfiled South Carolina returns, you need to file them before applying for an offer in compromise. Once you file unified returns, you can apply for an offer in compromise on all of your outstanding tax liabilities.

How to Apply for an Offer in Compromise

To apply for an offer in compromise, you must complete Form SC656 (Application for Offer in Compromise) and Form SC433-A (Collection Information Statement for Individuals) or Form SC433-B (Collection Information Statement for Businesses). These forms plus detailed instructions are available in the South Carolina offer-in-compromise pdf.

The offer-in-compromise application requires basic contact details about you or your business and information about your tax liabilities. Then, you note why you are requesting an offer in compromise and write out a detailed explanation of your circumstances. Finally, you make full financial disclosure on Form SC433A or SC433B and attach the requested supporting documents.

Reasons for Offers in Compromise

The SCDOR recognizes two valid reasons for offers in compromise:

• Doubt as to collectability
• Economic hardship

Doubt as to collectability refers to when the state doubts it will be able to collect more than the offer amount. Economic hardship applies when paying the entire tax liability would cause you financial distress.

When you fill out your offer-in-compromise application, you must note which of these reasons you're using. Then, you must explain why you should qualify. It's usually best to have a tax pro who understands the SC tax code write out the reason.

Making an Offer to the SCDOR

You must note the total offer and include a 10% downpayment when you make the offer. You also must tell the SCDOR how you obtained the funds.

When deciding whether or accept or reject your offer, the SCDOR considers the following elements:

• Your net equity in assets such as cash, bank accounts, investments, available credit, real property, personal vehicles, and personal assets.
• Disposable income which is defined as your income minus expenses. 
• Lifestyle factors such as whether you made extravagant purchases instead of paying your taxes due.

The SCDOR can only accept offers if they're in the state’s best interest. Acceptable offers must represent the most money that the taxpayer would be likely to pay between now and the end of the statutory collection period.

If you can afford to make installment payments, the SCDOR will reject your offer. Similarly, if the state can garnish enough wages to cover the full tax liability before the collection statute expires, it will not accept an offer in compromise. Or, if the SCDOR knows that you can sell assets to cover your tax bill, it will also not accept your offer.

Examples of Offers in Compromise

To help you understand how the SCDOR reviews offer, here are a few basic examples of the decision-making process.

Imagine that you owe $20,000 in South Carolina back taxes, and you offer to pay the SCDOR $5,000. The SCDOR looks at your financial disclosure, and they see that you have a boat worth $15,000 and an extra income of $500 per month. In this case, the state will assume that you can pay the bill in full, and it will not accept the offer.

On the other hand, if you have no assets and no extra income but you can borrow $5,000 from a relative, the state may be more likely to accept your offer. Again, the application process can be complicated, and you should consider working with a tax pro.

What Happens If the SCDOR Accepts Your Offer in Compromise?

The SCDOR will notify you by mail if they accept your offer. If accepted, you must pay the offer plus accrued interest within 30 days. After you pay the offer plus any extra interest in full, the state will release any tax liens against your assets. The SCDOR maintains the right to audit you for the tax period related to the offer as long as the audit is within the statute of limitations.

Once you have made the payment, you must stay compliant with the terms of the offer, or the SCDOR will reinstate your tax liability and start the collection process.

What Happens If the SCDOR Denies Your Offer in Compromise?

If the SCDOR denies your offer, the state will notify you by mail, and the 10% downpayment will apply to your tax bill. SCDOR expects you to set up a payment plan within 30 days, and if you don't make arrangements, the SCDOR will resume collection actions on your account 30 days after they made the determination.

OIC and Statute of Limitations

In South Carolina, the state has ten years to place a lien on your property after assessing a tax. The collection period is called the statute of limitations, and if the state doesn't take action during this time frame, it loses its opportunity to collect the tax.

When you apply for an offer in compromise, the SCDOR pauses the statute of limitations on your account. The pause remains in place while the department reviews your application. Then, the statute of limitations continues to be paused until you pay the accepted offer and while you are completing the terms of your offer.

If you don't pay the offer, or break the terms, the collection period will start again. To give you an example, imagine that nine years have passed since the SCDOR assessed the tax. The state has one year left to collect your tax liability. You apply for an offer in compromise, so the state pauses the clock.

The state accepts your offer, and you pay it, but you forgot to file a tax return six months after your initial application. This breaks the terms of your offer. At this point, the clock starts running again, but the state still has a year to collect the outstanding balance. Because the statute of limitations was paused, the state has not lost that collection time.

Tax Refunds After Offer in Compromise

The SCDOR has the right to keep any tax refunds issued during the offer’s calendar year. For example, if the SCDOR accepts an offer in compromise in January 2022 and you have a refund when you file your state tax return in April of 2022, the SCDOR will keep that.

Bankruptcy and Offers in Compromise

If you file bankruptcy before the offer is completed, the SCDOR will file a claim for the entire amount of the tax liability.

Collection Actions With Offers in Compromise

In most cases, the SCDOR pauses collection actions on your account when you apply for an offer in compromise. Still, if needed, the department can continue collection activity while reviewing your offer in compromise.

If you have an existing payment plan, you must continue to make payments while the department reviews your offer-in-compromise application. The payments will not be considered part of the offer in compromise. Additionally, if the SCDOR has a levy in place, any funds collected from the levy will also not count toward the offer.

Get Help Applying for an Offer in Compromise

South Carolina is serious about collecting delinquent taxes, but if you can't afford to pay SC state taxes in full, there may be other options. If you want to try to reduce your tax bill, you should work with a professional who understands the state's tax code. At TaxCure, we have a directory of tax professionals from around the country. View this search here that shows the top-rated professionals that have experience in handling South Carolina offer in compromise submissions.

SC Department of Revenue: Payment Plans

If you owe back taxes to the South Carolina Department of Revenue (SCDOR), you may qualify for a payment plan if you cannot afford to pay your tax bill in full. A payment plan allows you to pay off your tax liability in monthly installments, and the SCDOR offers payment plans on both individual and corporate back taxes. If you want a payment plan, you should contact the DOR as soon as possible. Once your wages are being garnished or other collection actions have taken place, the state will generally not approve a payment plan.

Here's what you need to know if you want a payment plan on your South Carolina back taxes.

Payment Plan Terms on South Carolina Taxes

If you owe individual income tax or GEAR debts, the SCDOR may be willing to give you up to four years to pay off your bill. Here are the terms based on how much you owe:

• 0 to $999 — 12 months or less
• $1,000 to $4,999 — 24 months or less
• $5,000 to $9,999 — 36 months or less
• $10,000 and above — 48 months or less

For example, if you owe $3,000, you may be able to make payments over a 24-month time period, but if you only owe $700, you must be able to pay off your balance in 12 payments or less.

The state determines payment plan term lengths for business taxes on a case-by-case basis.

How to Apply for a Tax Payment Plan in South Carolina

Individuals can apply for a payment plan using the following methods:

• In-person at their nearest SCDOR office.
• Through the mail using forms FS-102 (Payment Plan Request) and FS-102B (Waiver of Rights and Consequences).
• Online at the SCDOR website.

Businesses can only apply for a payment plan if they have received a payment plan request from the SCDOR, and they must use one of the following application options:

• In-person at the nearest SCDOR office.
• Through the mail using Forms FS-102 and FS-102B.

Whether you apply in person, through the mail, or online, you need to provide the SCDOR with the information requested on Form FS-102. This short single-page form requires your name or business name, contact info, the total balance due, and your proposed monthly payment amount.

Regardless of how you apply, there is a $45 application fee, and the SCDOR applies this amount to your balance.

Downpayments on SC Tax Payment Plans

If you want to pay online or with checks or money orders, you must include a downpayment with your application. The required downpayment is 10% of your GEAR balance and 20% of your individual income tax payments.

However, if you agree to make your payments with direct debit, you do not need to include a downpayment. You just provide the SCDOR with your checking account information, and you choose the date you want the SCDOR to withdraw your payments each month.

How to Determine Your Monthly Payment Amount

You can calculate your minimum monthly payment by dividing your total amount due by the maximum length of your payment plan.

For example, if you owe $12,000, you can take up to 48 months to pay off your balance. When you divide $12,000 by 48, you get your minimum monthly payment of $250.

If you want to pay off your balance faster, you can suggest a higher monthly payment, but the SCDOR will not accept a payment lower than this amount.

Terms of SC Tax Payment Plans

You must meet the following terms and obligations as you make payments on your South Carolina back taxes:

• File all required tax returns. 
• Pay all new tax liabilities in full.
• Stay current with estimated income tax payments.
• Provide the SCDOR with additional information if requested.

If you fail to meet these requirements, the SCDOR will consider you in default, and the agency can start pursuing collection actions on your account.

SCDOR's Obligations to Taxpayers Making Payments

The SCDOR will not seize or levy your property when you set up a payment plan, but the state may issue a tax lien to secure its interest. Additionally, the SCDOR has the right to claim tax refunds or lottery winnings. These amounts will be applied to your balance, but they will not take the place of your agreed-upon monthly payments.

The SCDOR has the right to request information about your financial situation when you're in the midst of a payment plan. But if the department decides to change your payment plan due to an improvement in your financial situation, it must notify you in writing at least 30 days in advance.

If you default on your payment agreement, the SCDOR has the right to take legal action against you. In the case of default, the SCDOR can force immediate collection of the tax.

How to Make Changes to Your SC Payment Plan

Individuals can request changes to their payment arrangements using Form FS-147 (Payment Plan Change Request). You can use this form to change your bank draft information or payment date.

You may also use this form to add an additional bill to your payment plan. You can only add an extra bill once, and you must pay off the extra bill within 12 months.

Businesses cannot use Form FS-147. If you want to make changes to a payment plan for business taxes, you must contact the SCDOR directly.

Get Help Applying for an SC Payment Plan

Contact an SC tax pro today to get help applying for a payment plan on South Carolina back taxes. A tax professional experienced with the SCDOR can help you identify the best resolution option for your situation, and they can help you negotiate the best arrangement possible.

At TaxCure, we have a unique ranking system. You can view the top-rated professionals that can best help you with a South Carolina Payment plan.