How Arizona Collects Taxes & Programs Available Offering Tax Help
The Arizona Department of Revenue is in charge of administering Arizona’s tax laws and a big part of this is collecting taxes. When Arizona residents do not file and/or pay their taxes on time, the Department will contact them by mail with a tax bill. If repeated attempts to collect are unsuccessful, then more aggressive collection activities will begin, as follows:
The goal of the Arizona Collections Department is to collect as much money from you as they can as quickly as possible. They are likely to request that you sell any assets you own to pay off your tax debt, or at the very least, to take a loan out to satisfy your tax debt. They are also within their rights to place a levy on your bank account(s) and to garnish your paycheck.
Demand for Payment
If you are you delinquent in paying your taxes for any of the following reasons you are at risk aggressive collections activities:
- Neglecting to file tax return(s)
- Non-payment or underpaying your taxes
- Dispute on the amount of tax owed
- Errors on your tax return(s)
- Fraudulent tax return(s)
Under any of these circumstances the State or the Internal Revenue Service will send you a Demand for Payment, which is essentially a billing notice. This starts the collection process.
Power of Attorney
You are within your rights to designate someone to provide you with tax help by representing you regarding tax matters with the State of Arizona. You would need to complete an Arizona Power of Attorney Form 285 designating this qualified professional as your representative before the State on tax matters. Once this form is submitted the Department can legally discuss your tax issues with this person.
If you’ve been delinquent in paying your taxes then at some point you’ll have a tax lien filed against you by the State, which will be filed at the County Recorders office and/or the Arizona Secretary of State. The lien would attach to all real estate and personal property you own or partly own. Once a lien has been filed it now becomes public record and will adversely affect your credit as well as your ability to take out a loan or buy, transfer or sell property. Upon fully paying your tax debt, any liens filed against you will be lifted within 60 days as long as you paid with certified funds or in cash.
A levy permits the seizing of personal property, real estate and money belonging to an individual who is delinquent in paying their taxes. If you are not able to make acceptable arrangements to pay off your tax debt, ignore the Final Demand Notice, do not make your installment payments as agreed, or do not provide the taxing department with your financial information when requested a levy may be issued against you.
If your bank account is levied for unpaid State taxes, the bank is legally obligated to place a hold on your money for 21 days; up to whatever amount you owe in back taxes. This gives you three weeks to resolve the matter if this was done in error, to contact the Collections Department for payment arrangements or to consult with an experienced professional for tax help and advice.
Wage Levy & Garnishment
If the State decides to levy your wages your employer is legally required to hold back a portion of your paycheck and send those funds to the State. This levy would continue on until your tax debt, including interest and penalties, is fully paid. Once you become aware that a tax levy is imminent it would be wise to consult with an experienced professional for tax help and advice.
The State also has the right to intercept any tax refunds that may be coming to you, whether from the State or the Internal Revenue Service. This collection activity is referred to as a refund offset.
Sales Tax Permits
Any business that collects and makes sales tax payments to the State is required to have a valid and current sales tax permit. Every business should have a reputable tax professional offering advice and tax help on a regular basis so that these issues do not arise and jeopardize operations. If you have an unpaid tax debt with the State, your sales tax permit is at risk of suspension or revocation.
Personal Liability for Business Taxes
If you’re a corporate officer or are the one in charge of seeing that the corporate taxes are paid you may find yourself held personally liable if the taxes are not paid. You would also be liable for the interest and penalties. In addition, corporations with outstanding taxes are at risk of their corporate charters being denied when they come up for renewal.
Programs for Arizona Taxpayers in Need of Tax Help or Tax Relief
Payment solutions for Arizona taxpayers who cannot pay the full amount they owe very nearly mimic the tax help and tax relief programs set up by the IRS. If you are having problems paying both your State and Federal taxes, you should find it fairly easy to complete the paperwork because both require essentially the same information.
The Arizona Department of Revenue offers the following solutions for taxpayers having difficulty paying their taxes in full:
Installment Payment Plans
An Installment Payment Plan is the most commonly used program offered to taxpayers who cannot fully pay their back taxes. Taxpayers who qualify are generally given up to 24 months to fully pay what they owe in taxes. The basic requirements that must be met are the following:
- You are not allowed to incur any new debts in addition to what you already owe.
- You must make all your installment payments on time.
- You must agree to provide up-to-date financial statements when requested during the term of your Installment Payment Plan so that the Department of Revenue can review.
- You must have not defaulted on more than two Installment Payment Plans in the past except under extraordinary circumstances.
If your financial situation does not permit you to pay your taxes in full, the State does allow individual taxpayers and businesses to make installment payments on their tax debt under certain circumstances. Here is what you will need to submit when making your application:
- Employer’s name
- Monthly expenses
- Bank account information
- Number of dependents
- Spouse’s name, income and place of employment
- Other financial information as needed
For Businesses: You will likely need to provide all of the above information, plus the following:
- Owners’ name(s)
- Owners’ social security number(s)
- Owners’ address(es)
- The business’ tax ID number(s)
- Current financial statement
- Profit and loss statement
If you’re an individual wanting to request an Installment Payment Plan you are required to complete Tax Form 1040IA. The State may also request a Collection Information Statement providing details of your financial situation. Businesses are required to complete this Financial Statement. If you have questions or concerns about these forms, you can phone the Office of Collections’ Phoenix office at (602) 542-5551 or the Tucson office at (502) 628-6442.
This information will be used in determining whether you, as an individual or business, have the means to pay the full amount you owe in taxes. Once a State Revenue Officer analyzes your financial information the State will propose a payment plan.
However, when it comes to businesses, the State is often unrealistic about ongoing expenses and how much income and money for reinvestment is needed to stay operational. It would be very risky on your part to enter into an installment payment agreement without first consulting with an experienced tax professional and getting their tax help and advice about what you can and cannot afford in monthly payments.
If the Department does agree to an Installment Payment Plan with you, it has the right to change or terminate the payment plan if you do not live up to the agreement by failing to do any one of the following:
- Failing to make an installment payment on time or pay any other tax debt when due
- Failing to file your tax return or report when due
- Failing to provide information within 30 days of the department asking for the information
- Failing to notify the department if and when your financial situation materially improves
- The Department of Revenue under highly unusual circumstances may approve a payment plan that extends beyond 24 months, but this is very rare.
An application for an Installment Payment Plan must include the following in addition to everything listed above:
- A copy of your income tax return
- Completed Individual Income Tax Installment Agreement Request Form 140-IA. For those with more than one employer, include the names of the companies or the names and contact information for the relevant individuals
- A copy of your Application for Filing an Extension, if applicable
- Mail this information to the address listed at the bottom on Form 140-IA. You will be contacted if the Department of Revenue is going to require you to fill out a Collection Information Statement. The Department will notify you within 60 days with a decision as to whether they’ve approved or denied your request.
- You will be charged interest on your unpaid tax debt from the date that your taxes were originally due. Interest will continue to accrue until your taxes are paid in full.
If circumstances warrant, the Department can grant you “temporary hardship” status. While you have this temporary tax relief status they will suspend all collections activities against you. But, you will still accrue interest on the amount you owe in taxes.
The following are some of the reasons for granting temporary hardship to a taxpayer:
- You are currently ill or obligated for large medical bills
- You are dealing with a separation or divorce
- You’ve been the victim of a natural disaster
- You are making significantly less money and paying the taxes you owe would lead to financial hardship.
- You are unemployed at present and financial hardship would result if forced to pay the taxes you owe.
- Child support payments would have to cease for now if forced to pay the taxes you owe.
- You’ve recently had large moving expenses.
- You recently had to pay unexpected auto or home repairs that led to financial hardship.
- There has been a death in the family.
Abatement of Penalties
Arizona allows tax penalties to be forgiven if there is reasonable cause. The following are the most common reasons why the Department of Revenue allows for the Abatement of Penalties:
- Tax records have been lost or totally destroyed.
- Tax return was filed late due to taxpayer’s unexpected illness or that of a family member.
- Death of the taxpayer or that of a family member.
- Tax return filed on time contained a mathematical error.
- Taxpayer was unavoidably absent due to being in prison, taken hostage, shipwrecked, or some other cause.
- And many more possible reasons.
A taxpayer must submit a written request when filing for the Abatement of Penalties. This is similar to the request when filing with the IRS to have penalties abated. For detailed instructions on what the Arizona Department of Revenue requires for this, please refer to their website. But, if you’re smart you’ll hire a qualified professional who has helped other taxpayers successfully navigate this process.
Once you’ve completed your written request for the Abatement of Penalties, mail it off to the following address:
Arizona Department of Revenue
Penalty Review Unit
1600 W. Monroe
Phoenix, AZ 85007
Offer in Compromise
If there is no way you can come up with the money to pay your taxes in full, you may want to determine if you would be eligible to request tax relief through an Offer in Compromise. This would allow you to pay less than what you owe to settle your tax debt once and for all.
In order to qualify, the Department has deemed the tax debt to be uncollectible or it’s been determined that it would be more costly to try and collect the tax debt than would be recovered in the end.
There is quite a bit of paperwork required of taxpayers when applying for this tax relief program, which means it would be crucial for you to have an experienced tax professional providing you the assistance you need to succeed with this filing.
If the State accepts your offer and you make payment, the outstanding balance you owed will be forgiven and any liens filed against you will be lifted. If you hope to get your offer accepted, you must offer an amount that reflects the absolute most you could pay.
To be eligible for an Offer in Compromise, you must meet the following requirements:
- Be up-to-date in filing your last three years’ income tax returns.
- If you own or operate a business your license(s) must be current as well as all tax filings for the business.
To request an Offer in Compromise you are required to complete a Statement of Offer and the required financial documentation. The following information must also be provided:
- The amount of your tax liability
- How much you’re offering to pay to settle your tax debt
- The source of the money you’re offering
- How often you will make payments and in what amount
- Any other pertinent information regarding your situation
Before you send your request in, ensure that all responsible persons have signed, such as your spouse or if you’re requesting this on behalf of a corporation, all corporate officers. If all required information is not submitted, the decision will be delayed.
When the Department issues a written decision on whether to accept or reject your offer, that decision is final. From that point on you do not have the right to contest the amount you owe in taxes. The State has the right to withhold any tax overpayments you’ve made or refunds owed to you, plus any proceeds derived from a levy issued before receiving your offer, but not received when your offer was submitted.
Lastly, if your offer is accepted, you are required to comply with all Arizona tax laws related to filing your returns and fully paying what you owe in taxes for the following three years. If you do not comply with all the terms laid out in your Offer in Compromise, you would be considered in default of the agreement.
Arizona Department of Revenue Contact Information
If you are in need of additional assistance, the phone numbers below can be used to reach the appropriate department:
Problem Resolution Officer: (602) 716-6025
Tax Liens: (602) 716-7805
Collections Office: (602) 542-5551
Offers in Compromise: (602) 716-7787