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Back Taxes: What They Are, What the IRS Can Do, and How to Resolve Them
If you owe back taxes, you’re not alone—and you’re not without options. This guide explains what back taxes are, why they grow so fast, what the IRS can do to collect, and the programs available to resolve your debt.
What Are Back Taxes?
Back taxes are taxes from a prior year that weren’t paid in full by the due date. Once that balance exists, it doesn’t sit still—it grows.
Three forces drive the growth:
Penalties. The IRS charges 5% per month for failing to file (up to 25%) and 0.5% per month for failing to pay (also up to 25%). If you owed $10,000 and didn’t file, you could add $2,500 in penalties in the first five months alone.
Interest. Interest compounds daily on your unpaid balance—and on your penalties. The current IRS underpayment rate is 7% per year, but because it compounds daily, the effective cost is higher.
Time. Every month you wait, both penalties and interest continue stacking. A $20,000 debt can become $30,000 or more within a couple of years without any additional taxes being assessed.
This is why filing—even when you can’t pay—is almost always the right first move. Filing stops the 5% monthly penalty from accruing.
How Back Taxes Happen
Most back tax problems start with normal life events, not fraud:
The IRS doesn’t care why it happened. They care that there’s a balance and that you resolve it.
What Happens When You Have Unfiled Returns
Unfiled returns create two problems:
First, failure-to-file penalties are steep—5% per month, up to 25% of the tax owed. That’s separate from interest.
Second, if you don’t file, the IRS can file for you. They call it a “Substitute for Return” (SFR). The problem? The IRS’s version doesn’t include deductions, credits, or exemptions you’re entitled to. The result is often an inflated balance.
If the IRS has filed a substitute return, you can replace it by filing the actual return. This often reduces the liability—sometimes significantly.
Before you qualify for most IRS resolution programs, you’ll need to be in filing compliance. That means all required returns filed. There’s no way around this.
Complications That Make Back Taxes Worse
Back taxes are rarely simple. These situations increase the stakes:
Substitute for Return (SFR). If the IRS filed for you, the balance may be higher than it should be. File your actual return to correct it.
Audit or disputed assessment. If the amount is wrong, you may need to pursue audit reconsideration or Appeals before choosing a resolution program.
Revenue Officer assignment. If your case moves from automated collection to a field Revenue Officer, enforcement typically accelerates. Representation becomes more important.
Business tax debt with payroll issues. Unpaid payroll taxes trigger Trust Fund Recovery Penalties (TFRP), which can make business owners personally liable for the employee withholding portion.
Multiple years and mixed tax types. Coordinating a strategy across years and tax types requires careful planning.
Active levy or lien. If enforcement is already underway, timing matters. You may need to request a hold while implementing a resolution.
What the IRS Can Do If You Don’t Resolve Your Debt
The IRS has significant collection powers. Here’s what they can do—and the stakes if you ignore the problem.
Liens
A Notice of Federal Tax Lien is a public claim against your property. The IRS typically files one when your balance exceeds $10,000 and you haven’t made arrangements. It attaches to everything you own and shows up in public records.
Levies
The IRS can seize money directly—freezing your bank account, garnishing your wages, or taking accounts receivable. Unlike most creditors, they don’t need a court order.
Asset Seizure
In serious cases, the IRS can seize and sell property—vehicles, real estate, business equipment. This is more common with business tax debt, particularly unpaid payroll taxes.
Passport Revocation
If you owe more than $64,000 (2025 threshold, adjusted annually) without a payment arrangement, the State Department can deny or revoke your passport.
Revenue Officer Assignment
For larger debts—typically over $250,000, or automatically over $1 million—the IRS assigns a Revenue Officer to personally work your case. They can show up at your home or business.
→ Read the full IRS Collections and Enforcement Guide for detailed information on the collection timeline, your rights at each stage, and how to stop or reverse enforcement actions.
IRS Resolution Programs: Your Options
The IRS offers several programs to resolve back taxes. The right one depends on your financial situation, how much you owe, and your ability to pay.
Installment Agreement (Payment Plan)
An installment agreement lets you pay your balance over time through monthly payments.
Who it’s for: Taxpayers who can pay their full balance over time but can’t pay it all now.
Types:
Key facts:
Apply online: If you owe $50,000 or less and have filed all returns, you can apply at IRS.gov/payments.
Partial Payment Installment Agreement (PPIA)
A PPIA is a payment plan where your monthly payment is based on what you can actually afford—even if it won’t pay off the full balance before the 10-year collection statute expires.
Who it’s for: Taxpayers who can make some payment each month but can’t afford to full-pay within the collection window.
How it works:
Key consideration: This isn’t a settlement—you’re paying what you can for as long as the IRS can collect. But it provides protection from enforced collection while you’re in the agreement.
Offer in Compromise (OIC)
An Offer in Compromise lets you settle your tax debt for less than you owe—if you qualify.
Who it’s for: Taxpayers who cannot pay their full liability through any other means, where the IRS agrees that accepting less is in their best interest.
The reality check:
Eligibility requirements:
Costs:
What happens after acceptance: You must stay in full compliance for 5 years. Miss a filing or payment, and the OIC can be revoked—reinstating your original debt plus penalties and interest.
What happens if your OIC is rejected:
Rejection is common—nearly 80% of offers don’t get accepted. If yours is rejected:
Before submitting an OIC: Use the IRS Pre-Qualifier tool at IRS.gov to get a realistic sense of whether you’ll qualify. If the numbers don’t work, an installment agreement or PPIA may be a better path—and you won’t lose money on a rejected offer.
Currently Not Collectible (CNC) Status
If paying your tax debt would prevent you from meeting basic living expenses, the IRS may place your account in Currently Not Collectible status.
Who it’s for: Taxpayers experiencing genuine financial hardship who cannot afford to pay anything toward their debt.
The numbers:
What CNC does:
What CNC does not do:
How it works:
Strategic consideration: If you’re close to the 10-year collection statute expiration and truly cannot pay, CNC status can let the clock run out on your debt.
Penalty Abatement
Penalty abatement removes or reduces penalties—it doesn’t touch the underlying tax, but it can significantly reduce your total balance.
Types of penalty relief:
The message: if you’ve been penalized, relief is worth pursuing. First-Time Abatement alone can often be obtained with a single phone call.
How We Approach Back Tax Problems
At The Tax Defenders, we use a structured methodology for every case:
Step 1: Get Filing Compliant
Most IRS programs require all returns to be filed. We determine which years need filing and prepare those returns, ensuring you get credit for all deductions and credits you’re entitled to.
Step 2: Verify the Liability
Before negotiating how to pay, we verify the amount is correct. If the IRS filed substitute returns, we can often reduce the balance by filing actual returns. If there’s a disputed assessment, we pursue reconsideration or Appeals.
Step 3: Choose the Right Program
Based on your financial situation, we determine which program gives you the best outcome:
Step 4: Implement and Manage
We prepare and submit the necessary forms, negotiate with the IRS on your behalf, and ensure the resolution is implemented correctly.
When to Handle It Yourself vs. When to Get Help
You can likely handle it yourself if:
You should consider professional help if:
IRS Collection Activity: The Numbers
The IRS collection function is active and well-funded. Here’s what the FY 2024 data shows:
Overall Collection
Installment Agreements
Offers in Compromise
Currently Not Collectible
Penalty Relief
The message: the IRS is collecting aggressively, but they’re also working with taxpayers who engage with the system. These programs exist and are being used at scale. Ignoring the problem is the worst strategy.
The Reality Behind “Tax Relief” Marketing
If you’ve searched for help with back taxes, you’ve seen the ads: “Settle your debt for pennies on the dollar!” “IRS Fresh Start Program—qualify now!” “Tax forgiveness—eliminate your debt!”
Here’s what the numbers actually tell us about how taxpayers resolve IRS debt:
Payment plans are the workhorse. Over 3.4 million taxpayers entered installment agreements in FY 2024. Compare that to 7,199 accepted Offers in Compromise. For every OIC the IRS accepts, they approve roughly 470 payment plans. The vast majority of people with tax debt resolve it by paying over time—not by settling for less.
“Pennies on the dollar” is the exception, not the rule. The OIC acceptance rate in FY 2024 was just 21%. Nearly 4 out of 5 offers get rejected. And when offers are accepted, the average settlement is around $22,700—not pennies. The IRS accepts what they calculate you can actually pay, based on your income, expenses, and assets. If you have the means to pay more, they’ll reject your offer.
“Fresh Start” isn’t a program you apply for. There’s no “Fresh Start application.” Fresh Start refers to a set of IRS policy changes from 2011-2012 that expanded access to installment agreements and made liens less automatic. Companies use the term because it sounds appealing—but it’s marketing language, not an IRS program with its own eligibility criteria.
“Tax forgiveness” is misleading. The IRS doesn’t forgive tax debt because you ask nicely. They may accept less through an OIC if you genuinely can’t pay. They may pause collection through CNC status if you’re in hardship. They may remove penalties if you qualify. But none of this is “forgiveness”—it’s a calculation based on what they can realistically collect from you.
What actually happens most often:
The bottom line: Most taxpayers resolve back taxes by either paying over time or having collection paused due to hardship. Settlement for less than owed is real, but it’s a narrow path with strict requirements. Any company promising you’ll “qualify” for settlement before reviewing your finances is selling you something.
Take Action
If you have back taxes, the balance is growing every day. Penalties and interest don’t wait, and IRS collection tools are significant.
The Tax Defenders has helped thousands of clients resolve IRS tax problems over more than 23 years. We’re BBB A+ rated and veteran-owned.
We’ll review your situation, explain your options, and give you a clear path forward.
