Summary

 

New York State taxpayers who are unable to satisfy their tax payment or filing obligations may face consequences such as tax warrants, wage garnishment, asset seizure, and penalties. Relief options include requesting penalty abatement, setting up monthly payment plans, exploring the Offer-in-Compromise program, filing for Innocent Spouse Relief, and utilizing the Voluntary Disclosure Program. Appeals against tax assessments are also possible. Unpaid taxes result in penalties, tax warrants, wage garnishment, asset seizures, business closures, driver’s license revocation, and loss of tax refunds. The DTF has 20 years to collect unpaid taxes, compared to the IRS’s 10-year statute of limitations. Common tax notices include the Notice of Determination and Notice of Deficiency. Understanding these options and potential outcomes can help taxpayers navigate tax issues and we are here to help with these issues.

 

Get Help With New York State Tax Problems

Relief Options and Consequences of Unpaid Taxes or Unfiled Returns in New York State

If you get behind on your tax payments or filing obligations in New York State, the Department of Taxation and Finance (DTF) may issue tax warrants, garnish your wages, or seize your assets. You will also incur penalties and interest if you don’t file or pay your taxes on time. Being in this situation can be very stressful, but there are many ways to get relief.

At The Timothy S. Hart Law Group, we specialize in helping New York taxpayers get caught up paying and filing their taxes. We also help with audits, criminal investigations, and other tax problems. We have extensive experience working with the DTF and other state tax agencies, and we can help you find a customized solution for your issue. To get help now, contact us for a free consultation.

New York State Tax Relief Options

If you can’t afford to pay your New York state taxes in full, the DTF may be willing to work with you. Every situation varies, but typically, you should start by requesting penalty abatement in order to lower the taxes owed since penalties often comprises are large portion of the total debt. The DTF generally waives penalties for people who have reasonable cause, and you may also be able to get penalty abatement if this is the first time you’ve incurred penalties.

Then, you should explore the following options for NY tax relief. Depending on the situation, you may end up using multiple programs to resolve your tax issue. Here are the main options:

Make Monthly Payments on Your State Taxes

Installment agreements let you pay off your state taxes in monthly payments. If you owe $20,000 or less and can pay off the balance in three years, you may able to set up a payment plan on the DTF’s website.

The DTF approves payment plans on larger balances and for taxpayers who need more time on a case-by-case basis. For instance, we have helped clients get affordable monthly payment plans even when they owed half a million on unpaid New York sales tax. If you owe more than $100,000, they will require that a DTF-5 form be filed (the DTF-5 form is also used when a person files an Offer in Compromise). 

Once you’re on an installment plan, you generally must stay current with your future filing and payment obligations, or your plan will go into default.

As sometimes happens in tough economic times, a taxpayer cannot afford the payment plan and stops making the monthly payments. Both the IRS and NYS call this defaulting the tax installment payment agreement. If you find yourself in this predicament, it is best to be proactive and have your tax counsel contact NYS Tax Department before the actual default of the missed payment to work out an alternate payment agreement. In the cases where you just need to miss one payment, normally NYS will overlook the default and give you time to make up the payment. If it a situation of a new tax liability, normally a new tax payment plan will need to be established, but it is much easier to establish a new payment plan where no technical default has occurred yet.

Therefore, by disclosing the default before it actually occurs, the NYS Tax Department will be more cooperative and work with you better. While this seems like common sense observation, most people in this situation are embarrassed by the whole situation and ignore it. It then becomes much worse than what it needed to be since they are now at risk of harsh collection activities when that could have been avoided by quick action

Settle New York State Taxes for Less Than You Owe

Through the offer-in-compromise (OIC) program, the New York DTF lets qualifying taxpayers settle their tax debts for less than they owe. To qualify, you must be insolvent, filed bankruptcy, or in a situation where paying the bill in full would cause economic hardship. The IRS also has an offer-in-compromise program, but the eligibility criteria are not the same.

Approval rates for both state and federal offers in compromise are relatively low, and working with an experienced tax professional helps to improve your chances of approval. At our law firm, we have helped clients with hundreds of thousands of dollars in state taxes settle for less than they owe, and in some cases, they were business clients who were still operating profitable enterprises. Getting an offer accepted by NY DTF is challenging, and you may want to work with a tax attorney for the best results.

Apply for Innocent Spouse Relief

If you owe taxes due to actions your spouse or former spouse took without your knowledge, you may qualify for innocent spouse relief in New York. Normally, when you file a joint income tax return, you and your spouse are both liable for the tax due regardless of who earned the income. However, in cases where your spouse incurred a tax liability without your knowledge, you may be able to get relief.

To qualify, you must have had no reason to know about the tax liability and/or you must have been coerced into signing the tax return. If approved, you will be able to separate your liability from your spouse, ex-spouse, or late spouse’s liability, and you will only be responsible for your portion of the tax bill. This program is also called separation of liability or equitable relief, and you can apply using Form IT-285.

Note that if your state tax refund is seized due to your spouse’s debt, you may be able to claim your portion of the refund. In New York, this type of tax relief is called Non-Obligated Spouse Allocation. You can apply using Form IT-280.

Use the Voluntary Disclosure Program to Catch up on Back Taxes

If you’re behind on filing state tax returns, you may be able to catch up through New York State’s Voluntary Disclosure Program. Designed to help people who have fallen behind on their state filing obligations, this program allows you to file back taxes without penalties.

You may qualify if you have unfiled returns and the DTF hasn’t billed, audited, or subjected you to a criminal investigation. The program is open to taxpayers with unfiled income, corporate, and sales tax, but you can’t qualify if you’re disclosing participation in a tax shelter.

Appeal the Tax Due

In New York State, you have the right to appeal if you don’t agree with a tax assessment. Generally, there are strict appeals deadlines that are noted on the notices from the DTF, but if you miss the deadline, you may still be able to request a review as an audit reconsideration. Appealing state taxes requires strong knowledge of the tax code — you may want to get a tax professional to represent you.

Consequences of Unpaid New York Taxes

The NYDTF has a lot of power to collect unpaid taxes. If you don’t pay your taxes, the state can use a variety of options to collect them involuntarily. Here’s what you can expect if you have unpaid state taxes in New York. If you’re currently dealing with or facing any of these actions, contact us for help.

Penalties

The DTF assesses a penalty of 5% of the tax owed for late returns. It also assesses a 0.5% penalty for late payments. These penalties get added to your account monthly, and they can each get up to 25% of your balance. For example, say you owe $10,000 and you pay and file five months late. Your late filing penalty will be $2,500, and your late payment penalty will be $250.

There are substantial penalties for underreporting the tax owed, committing negligence, or filing a frivolous return. If you underreport your tax liability by the larger of $2,000 or 10%, the penalty is 10% of the underreported tax. Underreporting due to negligence leads to a penalty of 5% of the tax owed plus 50% of the interest related to the underpayment. The penalty for fraud is double the unreported tax. There is a $5,000 penalty for frivolous returns, which is on top of the other penalties.

New York State Tax Warrant

The good news is that a tax warrant is not a warrant for your arrest. It’s just the name the New York Department of Taxation and Finance uses for tax liens. If you have unpaid state taxes, the Department can issue a warrant against you.

The warrant creates a lien against your assets. This gives the state the right to the proceeds if you sell your assets. It also lays the legal groundwork for the DTF to seize your wages, bank accounts, and property.

Wage Garnishment

The DTF calls a wage garnishment an income execution. Generally, the DTF will contact you first and ask you to devote 10% of your wages to your unpaid taxes. If you refuse, the DTF will send your employer a state income execution which is an order to garnish your wages.

Tax Levies and Asset Seizures

If you don’t pay your state taxes, the DTF can seize your assets. This is called a tax levy. The state can seize the money in your bank accounts, real or personal property, and payments held by third parties such as rent from tenants or accounts receivables from your clients.

The DTF can also go into your place of business, lock the doors, and deny you entry. Then, the department can sell your inventory or other business assets. The DTF adds the costs for seizing and auctioning off your property onto your bill.

Business Closures

As indicated above, the DTF can lock you out of your business. However, the department can also take other actions that close your business. In particular, if you don’t pay sales tax, the DTF can revoke your certificate of Authority so that you can no longer sell taxable services or products. The DTF can also revoke your business license and liquidate any bonds that you posted to obtain the license.

Driver License Revocation

If you owe more than $10,000, the state can revoke your driver’s license. To avoid losing your license when you have unpaid taxes, you must fall into one of the following categories:

• You have a commercial driver’s license (CDL).
• Your wages are being garnished.
• You receive Supplemental Security Income (SSI)
• You pay court-ordered spousal or child support.

Loss of New York State and IRS Tax Refunds

Unfortunately, when you owe state taxes, you generally will not be able to receive any tax refunds. The NY DTF participates in the Treasury Offset Program. Through this program, the DTF alerts the IRS about your tax debt, and if you file a federal tax return with a refund, the IRS will send the refund to the state to cover your unpaid taxes. Similarly, the DTF will also keep state tax refunds and apply them to your balance.

How Long Does the NY DTF Have to Collect Unpaid Taxes?

You cannot hide out from your New York state tax liability. The DTF has 20 years to collect unpaid taxes, and the clock doesn’t start ticking until the first day the DTF could file a tax warrant. This is in contrast to the federal statute of limitations on tax collection, which only gives the IRS 10 years to collect unpaid taxes, and the timer starts when the tax is assessed.

What Does Your DTF Notice Mean?

New York and IRS tax notices are often scary and almost always confusing. Here are some of the most common notices sent by the DTF and a brief description of what they mean:

• Notice of Determination — This shows state taxes that have been assessed against you.
• Notice of Deficiency — The DTF sends this notice when you have delinquent unpaid taxes.
• Form DTF-160 or DTF-161 — This notice details adjustments to your state tax account. For instance, if the IRS changes part of your return, the DTF will send you this notice to show you how the changes affected your state taxes.
• Form TR-210 — The DTF sends out Form TR-210 when people are due a possible tax refund.
• Statement of Audit Changes/Adjustment — This shows changes to your account based on a state tax audit.
• Form DTF-978 — This is a notice to a judgment debtor or obligor, and it means the state intends to levy your assets.

If you have questions about any of the above notices, contact us directly or reach out to the DTF using the contact details on your notice.

Get NY Tax Relief Now

We can help you find relief from your New York tax problems. As a Certified Public Accountant (CPA) and a tax attorney, Timothy S. Hart has the highest level of training to represent taxpayers, and our law offices have extensive experience helping people deal with their state and federal tax issues.

If you are dealing with unfiled taxes, unpaid taxes, a DTF audit, or criminal charges. We’ll talk about your situation and help you create a plan to deal with the DTF. Don’t wait — the longer you ignore unpaid taxes, the worse the situation can become. Contact us to get help today.