Tax Defense & Back Taxes: Unfiled Returns, Audits, Tax Liens, Tax Levies

Frequently unfiled tax returns and unpaid taxes are referred to as "back taxes."  These are garden-variety civil tax problems and can thought of as fitting into two general categories:  problems with assessment and problems with collection.  These problems are intertwined but their solutions are probably better viewed separately.


Assessment.  Assessment is how the amount of tax you owe is determined.  In our general tax system, we file our own returns; put another way, we "self-assess."  If you do not self-assess, its entirely possible the tax authorities will assess for you, or, they may review your self-assessment, commonly called an "audit."  Tax assessments are increasingly common as centralized computer systems can assemble informational returns (1099s, W-2s, etc.) and issue tax assessments.  While official statistics suggest audits are less common, computer-generated corrections or requests for information are a type of audit and are increasingly common.  Unfiled returns and basic audits are garden variety assessment problems; managed carefully they should never become anything more.


Collection.  Collection is how the tax authorities collect their bills.  Typically, a tax branch will have dedicated collectors.  If you cannot or will not pay your bill, the tax authorities will typically file a tax lien, levy financial accounts or garnish wages, and investigate your assets with an eye towards possible seizure.  As noted under assessment, collection has increasingly become a function of computer programs and notices.


It is difficult to appreciate the disruptive impact of enforced collection until you have personally experienced it.  A bank levy can bounce all of your checks and trigger bounced check fees.  A seizure of your business inventory can leave your store empty.  A levy on your rental unit manager or rental agent can leave you facing mortgage payments and maintenance fees.


Careful planning during the assessment process can have you prepared to manage the collection process and avoid enforced collection.  



Richard Paul McClellan III, 820 Mililani Street, Suite 701, Honolulu, Hawaii 96813 (808)523-0449