How North Carolina Collects Taxes & Programs Providing Tax Help
The North Carolina Department of Revenue administers the tax laws for the State and follows specific policies for collecting taxes from people who have not filed or paid their taxes when due. If necessary, the Department has a number of legal tools available to help collect outstanding tax debt from both individuals and businesses, as follows:
Penalties & Interest
The Secretary of Revenue is the one who establishes the interest rates. This is done every year prior to or on June 1st and December 1st and will go into effect for a six-month period starting the following July 1st and January 1st, respectively. This interest rate will apply to tax assessments and refunds.
If you fail to pay the full amount you owe in taxes, the Department of Revenue will automatically charge you interest on your unpaid taxes, which will be calculated at the set rate from the date the tax was originally due to the date you make payment.
If you find yourself in this situation you would be wise to consult with a reputable tax professional or CPA who can give you the tax help and advice you need to resolve your tax issues once and for all because delaying this will just compound the problem and increase your tax liability with penalties and interest continuing to be added to your tax bill.
Here’s what you need to know:
If you do not file your taxes on time, you will be charged a 5% penalty each month for filing late until you file your tax return. This will not exceed 25% of the tax owed.
If you pay your taxes late the penalty is 10% of the amount owed and not paid when originally due. But, if you received an extension and have paid at least 90% of what you owed when originally due, this penalty will not be charged if you pay the balance by the date of the extension.
Interest on estimated income tax underpayments is calculated on Form D-422. If you owe income tax, after credits and taxes withheld, of $1,000 or more the law requires you to pay estimated tax.
If the IRS ends up changing your federal tax return, you are required to amend your North Carolina tax return within 6 months of when you received notice from the IRS. If you do not report this change by the IRS, you will be charged a 5% penalty each month the change goes unreported to the Department of Revenue. This cannot exceed 25% of the added tax.
If your income is understated on your return, or you overstate your allowable deductions, or make inaccurate or false adjustments to your taxable income you risk having a 10% or 25% negligence penalty. If the IRS charges you with a penalty for negligence or accuracy, you would be subject to being charged with a negligence penalty on your North Carolina taxes as well.
If you do not pay an outstanding tax debt, the Department of Revenue has the right to charge you a Collection Assistance Fee of 20% on any tax, interest and/or penalty that you do not pay within 90 days of it becoming collectible. You will not be subject to this fee if you are making installment payments under an agreement that went into effect within 90 days after your tax debt became collectible.
If you write a non-sufficient funds check to the Department of Revenue, you will charged a 10% bad check penalty, not to exceed $1,000.
If it is found that you committed fraud in an attempt to evade paying taxes, you will be charged a 50% fraud penalty of your outstanding tax.
Notice of Collection
If you have been sent a Notice of Collection, this means that a tax assessment against you is now final and collection efforts may proceed. This would be a good time to hire an experienced tax professional or CPA to provide you with the tax help and advice you need. If you do not pay your tax debt at this point, the Department of Revenue has the right to pursue any of the following collection activities:
- Attach your bank account(s), salary or wages so they can be garnished.
- Have a Tax Warrant issued to levy your real estate so someone from the Department of Revenue or the sheriff’s office can seize and sell it.
- Have a Certificate of Tax Liability filed, which is a judgment that places a tax lien on any property you own.
- If criminal tax proceedings are underway, request that taxes be paid as a condition of any plea agreement or as restitution if convicted.
- If the Department goes down any of the roads mentioned above, you have the following 5 options for resolving the matter:
- Pay the full amount you’ve been assessed in taxes in order to have the attachment order lifted from your bank accounts(s), salary and wages so they can no longer be garnished.
- Pay the full amount you’ve been assessed in taxes so the Certificate of Tax Liability will be released.
- You can request that the Certificate of Tax Liability be released if one of the following conditions exists in your case:
- The judgment and lien were in error.
- Enforced collections are no longer legal due to the time that has lapsed.
- The Certificate of Tax Liability has led to extreme financial hardship for you.
- The property is worth more than your tax debt and releasing the Certificate of Tax Liability on a portion of the property would not prevent collection.
- The State would have a better chance of collecting the tax if it would release the Certificate of Tax Liability.
You can request an Installment Payment Plan, which would allow you more time to pay off your tax debt.
If the Department of Revenue begins criminal proceedings, you should hire an attorney and have him/her reach out to the prosecutor on your behalf.
A tax warrant is essentially a levy on any personal property that the taxpayer owns who has not paid the taxes, interest, penalties and fees they owe to the Department of Revenue. This gives the local Sheriff the right to seize the property so that it can be sold to satisfy the tax liability.
Bank Levies & Wage Garnishment
If you owe an outstanding tax bill, the Department of Revenue may levy your bank account(s) and garnish your wages, as follows:
- Attach your bank account(s) so that the funds can be garnished and used to pay your tax debt.
- Attach any payments and/or commissions you receive from a contract so they can be garnished and used to pay off your tax debt.
- Attach your wages, forcing your employer to garnish them to pay your overdue taxes.
Attached wages and garnishments would be 10% of the employee’s gross income, which would be carried out until his/her tax debt is paid in full. Attachments and garnishments for non-wages, money earned from a contract and bank accounts are for 100% of the tax owed until the debt is settled. Attached and garnished payments should be sent every 30 days to the Department of Revenue until the amount shown on the levy plus interest is fully paid.
Certificate of Tax Liability
A Certificate of Tax Liability is a legal judgment placed on any real estate or personal property owned by a taxpayer who owes back taxes. This becomes public record and for the taxpayer to get clear title back, the CTL for the delinquent taxes must be settled or somehow resolved.
Once the Clerk of Court office releases the CTL, it will be up to you to contact all the credit reporting agencies informing them that the matter has been resolved and to remove take this off your credit report. The North Carolina Department of Revenue cannot do this for you.
Power of Attorney
You are entitled to have tax help with a qualified tax professional or CPA representing you before the North Carolina Department of Revenue. To do this you need to file Power of Attorney & Declaration of Representative Form GEN-58 with the State.
Options Providing Tax Help & Tax Relief to North Carolina Taxpayers
For taxpayers who honestly do not have the funds to fully pay their taxes, the Department of Revenue is more than willing to help. There are a number of programs and options available for resolve all types of tax problem. Taxpayers can work with the Department through the mail, over the phone or in-person at local Department of Revenue Service Centers, which are scattered around the state.
Installment Payment Plans
If you do not have the money to pay your taxes in full, the Department of Revenue may allow you to make monthly payments until the debt is paid in full. If you would like to request tax help through an Installment Payment Plan you would need to complete and submit an Installment Agreement Request Form RO-1033.
If the Department has sent you a Notice of Taxes Owed you are entitled to request an Installment Payment Plan. If, on the other hand, you have received no such Notice, you can certainly make a payment, but you are not eligible to request an Installment Payment Plan.
If you just owe a small amount of money or you only need a short period of time to get the debt paid, the Department won’t ask for any further documentation to accept your request. If you owe a large amount of money or need a long period of time to fully pay your tax debt, the Department may insist that you submit additional financial statements in order to qualify for an Installment Payment Plan.
To be eligible, you must:
- Be up-to-date in filing all your tax returns when you submit your request for a payment plan.
- Fully pay your taxes during your entire payment period
- Authorize that your payments be automatically withdrawn from your bank account
- Understand that any tax refunds due you in the future or winnings from the NC Education Lottery will be intercepted and applied to your unpaid tax debt
- Agree to allow the Department to place a tax lien against your property that will remain there until your tax debt is fully paid
To request an Installment Payment Plan you will need to complete and submit an Installment Agreement Request Form RO-1033, which you can obtain and submit online through the North Carolina Department of Revenue’s website.
Please call the Department of Revenue at (877) 252-3052 with any questions you may have about your taxes and which options you may be eligible for to resolve your outstanding tax debt.
Waiver of Penalties
If you have been assessed with a penalty as a result of unpaid taxes and you think the penalty is not fair, you are entitled to ask for tax relief through a penalty waiver. The Department will consider your request if you meet certain qualifications. For example, they may grant your waiver if you can prove that you or a family member has suddenly fallen ill, which has caused you to lose income.
You may also be eligible for a Compliance Waiver if you are up-to-date in filing your tax returns, do not owe any other taxes, have no prior waivers in your past and the penalty you’ve been charged with was not caused by any deliberate attempt on your part to avoid paying your taxes. To request a Penalty Waiver you would need to complete and submit Form NC-5500.
Offer in Compromise
North Carolina’s Offer in Compromise Program is a form of tax relief in that it gives taxpayers an opportunity to settle their entire tax debt with a lump-sum payment for a lesser amount than they actually owe. To request an Offer in Compromise you would need to complete and submit Form OIC 100 and make a down payment of 20% of your proposed offer. Taxpayers who meet one of the conditions listed below will qualify:
- Reasonable doubt exists that you actually owe this amount in taxes due to the facts of the situation as well as the tax code.
- You are financially insolvent, so it is very unlikely that the Secretary of Revenue could ever collect the same amount or any more than what you are offering in the compromise.
- Collecting any more than what you are offering to settle your tax debt is unlikely because the money or a great deal of the money you’re using for the offer is coming from sources that the Secretary has no right to collect from to pay off your tax debt.
- A tax assessment issued by the IRS due to the same situation has been compromised with you offering the same or a similar amount as you have offered the State. Under these circumstances the Secretary of Revenue could not expect to collect an equal amount or more than what you are offering.
- It would be nearly impossible to collect the entire balance because your income and/or assets are legally protected from seizure.
- Collecting any more money than your proposed offer would cause a financial hardship or basically be unjust.
You are only allowed to request an Offer in Compromise if the Department of Revenue has completed their Final Assessment of your tax debt. Your offer must be more than $1 otherwise it will not be considered.
The North Carolina Department of Revenue has published a booklet on how to request an Offer in Compromise. It explains step-by-step the entire application process, and discusses what they take into consideration when deciding to accept or reject a request. This booklet also provides answers to many of the questions you probably have about the process.
Aside from using this booklet, you may also find it worthwhile to hire a CPA or tax professional with experience successfully guiding through other North Carolina taxpayers through the entire process. This is the kind of tax help you need in preparing all the paperwork so that you have the best chance possible of being granted tax relief through an Offer in Compromise.
To request an Offer in Compromise you will need to complete and submit the following:
- Offer in Compromise Form OIC 100 with all sections completed. If a section does not apply to you, write N/A.
- Collection Information Statement for Individuals Form OIC-1062 with all sections completed. If a question does not apply to you, write N/A.
- If the source of the funds for your offer is coming from a third party, you will need to complete and submit a Third Party Affirmation of Offered Amount Form OIC 102.
- Complete copies of your last 2 IRS tax returns and complete copies of the last 3 bank statements from all accounts.
- If you are employed, your pay stubs from the last 2 months’ paychecks.
- Documentation to substantiate the expenses you are claiming and any special circumstances.
- Any other relevant information that pertains to your request.
- A certified check for 20% of your proposed offer. However, if your income is below the official poverty guidelines and/or you are submitting a Third Party Affirmation of Offered Amount Form OIC 102, the Department may make an exception.
Your request for an Offer in Compromise should be submitted to your local Department of Revenue Service Center. You can find the location in the booklet on page 7. Once the Department of Revenue accepts your offer you would be required to pay the amount of the settlement in full.
IRS Offer in Compromise
The Department of Revenue will consider and assess your offer independently from any offer you are making to the IRS under their Offer in Compromise program.
North Carolina Department of Revenue Contact Information
To speak to the Department of Revenue about your tax debt call (877) 252-3052. You can also mail your inquiries to:
North Carolina Department of Revenue
P.O. Box 25000 Raleigh
North Carolina, 27640-0640F
..or help getting your tax problems resolved you are welcome to reach out to your local Department of Revenue Service Center for tax help.Contact Us