Indiana Aggressively Collects Back Taxes but Tax Help is Available
The Indiana Department of Revenue is in charge of collecting State taxes, which means dealing with situations in which a taxpayer is delinquent in paying his/her taxes. The Department also dedicates itself to helping taxpayers struggling to resolve their unpaid tax liability. Indiana taxpayers who are unable to pay the full amount they owe in taxes should feel confident about reaching out to the Department for tax help.
However, if taxpayers do not contact the Department for help and instead just ignore their tax obligations, there could be serious financial consequences. The State of Indiana has the right to take whatever actions are necessary to collect delinquent taxes. Once the State is aware of your unpaid back taxes, they will notify you to contact them to resolve the matter. Do not ignore this Demand Notice because that will start an active collection process.
Demand Notices For Payment
If an Indiana taxpayer does not pay or protest within sixty days of the date of the first notice from the State, the Department of Revenue will send a Demand Notice before proceeding with a tax warrant for payment. A Demand Notice will essentially give the taxpayer ten days to either pay his/her delinquent taxes or provide the State with evidence to prove they have reasonable cause to not pay the amount demanded in the Notice.
A Demand Notice also include the following information:
- The statute in the law giving the Department the authority to file a tax warrant
- The earliest date that the tax warrant (a tax lien) could legally be issued and recorded
- Steps you could take to prevent the tax warrant from being issued against you
If you get a Demand Notice For Payment in the mail, you need to pay your taxes by the due date stated on the Notice. If you are unable to pay the full amount, you must phone or write a letter to the Department by the due date. The Department does offer tax help and tax relief under certain circumstances.
Penalties Imposed on Delinquent Taxes
- Failing to file a tax return or intent to defraud by evading taxes: 100% penalty
- Failing to file a tax return and the Department does the preparation: 20% penalty
- Liability for owing penalty: $5 or 10%, whichever is the greater amount
Tax Warrants & Tax Liens
If an Indiana taxpayer fails to pay their taxes, a “Demand Notice” or a “Proposed Assessment” will cause a tax warrant to be issued. A tax warrant is going to show up on any title search or credit report for as long as seven years. If a tax warrant is issued against you that means that tax collection is now being enforced by the state.
If the full amount of money you owe in taxes is not paid, the tax warrant may be sent off to the sheriff for enforcement. The sheriff will now be authorized to collect the full amount due, plus any interest, penalties, clerk’s costs and a 10% collection fee of the amount of tax due. Before this occurs, you would be well advised to seek tax help from a reputable professional.
The sheriff’s options for collecting your taxes:
- Auction off your property
- Garnish your paycheck
- Place a levy on your bank account(s)
If the sheriff is unable to collect the full amount due within 120 days of the tax warrant being issued, the Department is allowed to turn the matter over to a private collection agency.
The State of Indiana has every right to remove from your bank accounts to pay for any back taxes owed by you. They do this through a bank levy, which banks are required by law to comply with. If the money the State is asking for is in your accounts, the bank must send it to the State, however the State cannot ask for more money than you legitimately owe them in back taxes.
However, the law allows for a holding period to give you time to hire professional help to get your money returned and/or to prevent additional bank levies or other forms of collection. Also, if the IRS owes you a tax refund, the State has the right to intercept that to satisfy your unpaid state taxes. You may be able to avoid this by hiring a professional to help getting you tax relief.
Your employer is under a legal obligation to comply with a State or IRS wage garnishment request. The State of Indiana may garnish any taxpayer’s wages if they have a delinquent tax bill until their back taxes are paid in full.
Programs are Available for Indiana Taxpayers Who Need Tax Relief
The Indiana State Department of Revenue certainly wants every taxpayer to pay their taxes on time and in full. However, that isn’t always possible so the Indiana Department of Revenue is willing to work with taxpayers to resolve their tax situation. There are a number of programs that you may qualify for if you are delinquent on your State taxes:
Indiana Tax Payment Arrangements (INTax Pay)
If you cannot pay your taxes in full you may be able to arrange a series of payments. If what you owe in taxes is anywhere from $100 to $500 you may be given 12 months to pay it off. If what you owe exceeds $500, you can arrange to make payments for as long as 24 months. To be approved for this you would need to pay at least 20% down to start with. Penalties and interest will keep accruing until your tax debt is totally paid off, but this should provide some tax relief.
If you have received a tax bill of more than $100 you can arrange for a payment plan by going online to the website. Once there you would need to register an account, create a username and password, which you would use for future logins. It’s all set up for you to make your payment arrangements right there online. If you don’t have a computer to use, you can still arrange for a payment plan by placing a phone call to the Department at (317) 232-2165.
Indiana Offer in Compromise (OIC)
If there is no way for you to fully pay your State tax liability, an Offer in Compromise might be one option. The Department is allowed to settle for a lesser amount than is owed on taxes. This may be paid in one single payment that would satisfy your entire liability, or through a payment plan. The Department will not accept an offer of zero dollars.
Indiana has a Tax Advocacy Office to help taxpayers having difficulty paying their taxes. If you are seeking tax relief an Offer in Compromise may be your best option. This is an agreement with the State to settle your taxes for less than you owe. In order to gain approval your offer would have to be for a reasonable amount of money based on the amount of your tax liability along with your earning potential.
Qualifications for an Offer in Compromise:
- Taxpayer is facing serious financial difficulties
- An immediate family member of the taxpayer has a critical or terminal medical illness
- Taxpayer is going through a personal crisis resulting from an unforeseen debilitating financial event or a natural disaster
Application for an Offer in Compromise includes:
- A completed Form FS-OIC, which is a Financial Statement
- Proof of being in compliance with all tax filings and of being current
- Proof that any bankruptcy filings have since been dismissed or discharged
Offer in Compromise applications are often denied for the following reasons and more:
- Extensive required documentation has not been prepared correctly or provided
- Offer is fraudulent
- Current tax returns have not been filed
- Failure to provide verification of income and assets belonging to the applicant
- Failure to provide verification of sources of funding
- New tax liabilities are being accrued
- Agreed payments are not being made
If you believe that you meet the qualification for an OIC, it would be best to obtain professional tax help before proceeding with an application. Unless your proposal is correctly prepared, it will likely be denied.
Before filing for an Offer in Compromise make sure you have filed all tax returns and you are not undergoing an active bankruptcy. If the State has already taken legal action against you, like a collection lawsuit, bank levy, ordered to appear in court, or your wages have been garnished, an Office in Compromise cannot impede those proceedings.
You must submit the following:
- A completed and signed with all supporting documentation attached
- A detailed Letter of Circumstance, which explains why you haven’t been able to pay your taxes on time. The letter must also explain why you cannot make payment arrangements at the moment to pay the full amount you owe.
- If you’ve had a bankruptcy, attach a copy of your Bankruptcy Dismissal Notice or your Bankruptcy Discharge papers.
- A written and signed statement from your physician discussing your or your family member’s medical diagnosis, treatment and prognosis, if this applies.
Mail your packet to the Tax Advocacy Office at the following address:
Indiana Department of Revenue
Office of the Tax Advocate
P.O. Box 6155
Indianapolis, IN 46206-6155
Just because you submit an offer there is no guarantee that the Department will accept it and while they are evaluating your application penalties and interest will continue to add to the total amount you owe. If they do accept your offer, you’ll either pay the amount in one large payment or you’ll come to an agreement on a payment plan after first putting 20% down.
It will probably take the Department of Revenue two or three weeks to process your Offer in Compromise paperwork, at which time you will be notified of their decision. You may phone them at (317) 232-4692.
Claim of Hardship
If you are suffering from a very serious financial hardship, which makes it impossible for you to pay your delinquent taxes, you can ask for a Claim of Hardship. If approved it would allow you to postpone your payment or arrange for an extended payment plan in line with your situation.
The qualifications for a Claim of Hardship are the following:
- Someone in your immediate family must be critically ill or terminal
- Or, you cannot pay your taxes because your livelihood is seriously under threat
You must show proof that the tax warrant (or lien) that the state filed is only adding to your hardship and that of your spouse and/or dependents. If your vehicle has a lien on it or a protest has been filed on your employment license, you need to show proof that these collection activities are impairing your ability to earn a living so you can pay your back taxes.
The application for a Claim of Hardship is Form FS-H, which you would complete and submit to the Tax Advocacy Office at P.O. Box 6155, Indianapolis, IN, 46206-6155.
Indiana Department of Revenue Power of Attorney (POA)
It may be that you want a qualified professional to represent your interests in dealing with the Department. If so, this would require that you give them Power of Attorney by completing Power of Attorney Form POA-1 or the Internal Revenue Service’s Power of Attorney Form 2848. This form would have to be signed and submitted before the Department could discuss your tax matters with your representative.
Contact Information for the Indiana Department of Revenue
The Department wants to make it easy for taxpayers to obtain the information and proper forms needing to resolve their delinquent tax issues. If you have any questions related to your taxes or are in need of additional tax help, please feel free to reach out to the Department of Revenue as follows:
Mailing address for general inquiries:
Indiana Department of Revenue
Re: Individual Income Taxes
P.O. Box 40
Indianapolis, IN, 46206-0040
Taxpayer Services Division: (317) 232-2240
Tax Advocacy Office: (317) 232-4692
Collection Division: (317) 232-2165