Back Taxes

Back taxes cover two problems that usually arrive together but are not the same thing: a return that was never filed, and a balance the IRS has already assessed and you have not paid. Each carries its own deadlines and its own exposure, and the order in which you address them changes what relief is available.

Whiteford's tax controversy attorneys handle both, for individual taxpayers and for businesses carrying delinquent payroll, income and sales tax filings. Michael March takes calls from taxpayers directly, and initial consultations are confidential and complimentary.

What counts as back taxes

The term covers any federal or state tax obligation from a prior period that remains open. In practice, most cases fall into one of four patterns:

• Unfiled tax returns for individuals: Forms 1040 that were never filed, often across several consecutive years
• Unpaid assessed balances: returns were filed, the tax was reported, and the balance was never satisfied
• Business filings: delinquent Forms 941, 940, 1120 or 1065, plus state sales and use tax returns
• Assessments you never saw: liabilities the IRS created on its own after a return was not filed

Unfiled returns

When a return is not filed, the IRS can prepare one for you under Section 6020(b), built from W-2s, 1099s and brokerage data with the standard deduction and little else. That substitute for return is almost always worse than the return you would have filed, and it never starts the assessment statute, so an unfiled year stays open indefinitely. Filing your own original return replaces it and is usually the single highest-value step in a case.

How many years to file, what happens to refunds on late returns, and how a nonfiler is brought current in the right order are covered on our unfiled tax returns page. The rest of this page covers what happens once a balance exists.

Unpaid balances: how the debt compounds

Two penalties run against an unpaid balance. Failure to file under Section 6651(a)(1) accrues at 5 percent of the unpaid tax per month, capped at 25 percent. Failure to pay under Section 6651(a)(2) accrues at 0.5 percent per month, also capped at 25 percent. In any month where both apply, Section 6651(c)(1) reduces the filing penalty by the payment penalty, so the combined rate is 5 percent rather than 5.5 percent.

Two details are easy to miss. Once the IRS issues a notice and demand and 10 days pass without payment, Section 6651(d) raises the failure-to-pay rate to 1 percent per month. And a return filed more than 60 days late carries a floor, the lesser of 100 percent of the tax due or a statutory minimum adjusted annually for inflation, set at $525 for returns required to be filed in 2026.

Interest under Section 6601 runs on the tax and the penalties, compounds daily, and is not waivable on its own except where it stems from an IRS error or delay.

The 10-year collection window and what pauses it

Section 6502 gives the IRS 10 years from the date of assessment to collect by levy or by suit. That collection statute expiration date is calculated separately for each tax year and each assessment, not once for the account as a whole.

Several events suspend the clock. A pending or active installment agreement request, plus the 30 days after a rejection or default, tolls collection under Section 6331(k), and so does a pending offer in compromise plus 30 days after rejection and any appeal. A collection due process hearing request suspends the period under Section 6330(e) while the hearing and any appeal are pending, and for at least 90 days after a final determination.

Bankruptcy suspends the clock under Section 6503(h) for the period the IRS is barred from collecting plus six months, and continuous absence from the United States of six months or more suspends it under Section 6503(c).

Filing a request in the wrong sequence can extend the government's collection life on a debt that was about to expire, which is why reading the account transcript and calculating the real expiration date before submitting anything is part of the work.

Liens, levies and passport certification

Unresolved balances escalate on a predictable path. A federal tax lien attaches to property and surfaces on title searches and credit reviews, while a levy takes what is there: bank accounts, wages, accounts receivable. If you are receiving notices in the CP504, CP90 or LT11 sequence, the collection due process rights attached to those notices carry deadlines, and letting them lapse gives up the most useful procedural tool in the case.

Separately, Section 7345 directs the IRS to certify seriously delinquent tax debt to the State Department, which can then deny, revoke or limit a passport. The threshold is indexed annually and stands at $66,000 for 2026, including penalties and interest, and certification requires a filed lien with collection due process rights exhausted or an issued levy. A timely installment agreement, an accepted offer in compromise, a pending innocent spouse claim, or a collection due process hearing all keep a debt outside that definition.

Business back taxes and personal liability

Unpaid employment taxes are treated differently from every other business liability, because part of what the employer failed to remit was never the employer's money: income tax and the employee share of FICA withheld from paychecks are held in trust for the government. When those funds are used for payroll or a supplier instead, Section 6672 lets the IRS assess the full trust fund portion personally against anyone who was a responsible person and acted willfully.

Responsible person status turns on functional authority over which creditors get paid, not on title, and it can reach officers, bookkeepers, controllers and outside advisors. Willfulness does not require bad intent: knowing the taxes were owed and directing available funds elsewhere is enough.

Section 6672(b)(2) requires the IRS to send written notice, ordinarily Letter 1153, at least 60 days before it can issue a notice and demand for the penalty, and that window is the practical time to file a written protest. Under Section 6672(b)(3)(B), a timely protest extends the assessment deadline to 30 days after the IRS makes a final administrative determination, and responding well inside that window is often the difference between an entity-level problem and a personal one.

State exposure follows a similar logic. Maryland, Virginia and the District all impose personal responsible-officer liability for unremitted sales and withholding tax, and Maryland can put a hold on a business license or an alcohol license while a balance is open.

When back taxes become a criminal matter

Most delinquent filers are never prosecuted, but the exposure is real enough to plan around. Section 7203 makes a willful failure to file a misdemeanor punishable by up to one year. Section 7201 makes a willful attempt to evade tax a felony punishable by up to five years, and it requires an affirmative act beyond simply not filing, such as falsified records, concealed accounts, nominee ownership or structured cash withdrawals.

Both charges require willfulness as the Supreme Court described it in Cheek v. United States: a voluntary, intentional violation of a known legal duty. A genuine good-faith belief that no filing obligation existed defeats that element even if the belief was unreasonable.

Where the facts include unreported cash income, offshore accounts, or non-filing that follows a prior IRS contact, get counsel involved before submitting anything. A voluntary filing is not a defense once an examination or criminal referral is already underway, and privilege does not extend to a return preparer.

How a back tax case gets resolved

The sequence matters more than most people expect, and doing it out of order costs money.

1. Start with the record, not the returns. Account and wage transcripts show which years are open, what was assessed and when, whether substitute returns were filed, where each collection statute expiration date falls, and whether any penalty was already abated.
2. File corrected original returns with the deductions and basis a substitute return omitted. The corrected liability on a substitute return year often comes in well below the assessed figure, and audit reconsideration can sometimes reopen a year the IRS considers closed.

• Resolve the balance once the real number is established. An installment agreement spreads the balance over time. An offer in compromise settles for less where reasonable collection potential supports it. Currently not collectible status pauses enforcement during genuine hardship. Penalty relief runs on two tracks: first-time abatement, an administrative waiver for a clean three-year compliance history, and reasonable cause relief under Treasury Regulation 301.6651-1(c), a legal standard, reviewable in court, that asks whether ordinary business care and prudence were exercised.

Why Whiteford

Whiteford Tax Defense sits inside a full-service firm of more than 200 attorneys with 19 offices across ten states and the District of Columbia. Back tax cases rarely stay in one lane: a delinquent payroll filing becomes a personal trust fund assessment, then a lien on a house, then a question about whether the business can keep operating.

Michael March practices civil and criminal tax controversy and handles matters from first notice through United States Tax Court and federal district court. The firm's work includes IRS and state audits, administrative appeals, collection matters, offers in compromise, and criminal tax defense, including unreported income and unremitted payroll cases where the outcome turned on early intervention. Our Tax Debt Relief overview covers the full range of options for resolving an IRS or state balance.