A Review of Common Indiana State Back Taxes Options
The Indiana Department of Revenue (DOR) is responsible for the administration of the income taxes for the State. The DOR administers all facets of Indiana’s tax code. Furthermore, this includes handling tax resolution matters for individual and business taxpayers.
If a taxpayer has an unpaid tax liability with DOR, they offer various options in order to assist taxpayers in resolving tax liabilities. For instance, options exist to set up a monthly payment or apply for a settlement through the Offer In Compromise program. Additionally, certain taxpayers may qualify for non-collection status (called currently not collectible by the IRS) or Innocent Spouse relief in the case of a married individual.
Below we will discuss these options (not an exhaustive list) with the state of Indiana. Throughout this article, we may provide practical tips. However, taxpayers should seek the advice of a qualified tax professional.
Tax Payment Plan
The DOR will allow taxpayers to set up a monthly tax payment plan to pay their tax liability over time. However, the DOR requires that individual taxpayers have a balance greater than $100 and that businesses owe at least $500. Payment plan durations may range from 4 to 60 months, and you can pay monthly or bi-weekly. Some downsides exist when taxpayers set up a payment plan. When you don't pay your taxes in full and on-time, the DOR will assess an additional 10% penalty on the balance of the liability plus interest. Interest will continue until the taxpayer has satisfied the entire balance. Therefore, some taxpayers may want to consider other options such as using a credit card or a loan to pay their taxes on time -- this allows you to avoid the late payment fee, but you should compare the interest rates of outside financing and the DOR before making a final decision. We discuss Indiana tax payment plans here.
Offer In Compromise
The DOR has a division called the Taxpayer Advocate Office (TAO) that administers the Offer in Compromise (OIC) program. The TAO states that their office addresses complex and special tax problems.
An Offer In Compromise is a program where taxpayers may offer to settle their taxes owed with the DOR for an amount less than their tax balance. Generally, these taxpayers qualify based on their current financial status. Therefore, taxpayers with the ability to pay in full or make monthly payments rarely will qualify. Specifically, the DOR states that the taxpayer must make a reasonable offer based on their total liability and their earnings potential.
You can read more about an Indiana Offer in Compromise program here.
The TAO administers a program that allows taxpayers who are suffering from financial or medical situations. More specifically, they allow taxpayers to set up special low monthly payments or to postpone making payments for a period of time. This program is called the Hardship Program.
In order for a taxpayer to be considered eligible for the hardship program one of the following must apply:
- The outstanding taxes threatens the taxpayer’s livelihood
- A terminal illness or disability has fallen on the taxpayer or an immediate family member of the taxpayer
- The taxpayer has experienced recent personal devastation resulting from a natural disaster or uncontrollable event
- Due to recent unemployment or forced job change, the taxpayer faces financial hardship
Taxpayer’s who meet one the above-stated criteria should complete and file Form FS-H. The TAO will review the application and then determine an appropriate reasonable monthly payment plan or postponement of payments, given the specific circumstances. If accepted into the Hardship Program taxpayers should expect periodic reviews by the TAO of their financial or medical situation to determine if the Hardship Program is still necessary.
Additional requirements of the Hardship Program include:
- being up to date on all current filing and payment obligations
- and to maintain compliance moving forward.
If the taxpayer files a tax return or makes a payment late, the Hardship Program payment plan or deferral may be canceled and normal collection activities will resume.
Taxpayers should be aware that this program is a temporary solution for resolving unpaid taxes. In other words, the Hardship Program will not cancel, discharge, or settle the taxes. Nor will the Hardship Program put a hold on the account indefinitely, or stop or reverse collection actions that have occurred prior to acceptance into the program.
The DOR and the TAO state that they will review Hardship applications within 15 to 20 days. They ask that taxpayers (or their representatives) mail completed applications to:
Office of the Taxpayer Advocate
Indiana Department of Revenue
P.O. Box 6155
Indianapolis, IN 46206-6155
In certain situations, a spouse on a jointly filed tax return may be held not liable for taxes. The IRS calls this Innocent Spouse Relief, and the DOR refers to it as Innocent Spouse Relief.
The DOR will consider granting Injured Spouse Relief in any of the following situations:
- The IRS determined that the taxpayer is entitled to Innocent Spouse relief for the same tax year
- Income was not reported on the tax return, and the innocent spouse was unaware or had no access or use of that income
- Income was earned and the innocent spouse had no compensation from this income and the innocent spouse thought all taxes had been filed and paid
- All of the income reported was the spouse’s income and the innocent spouse filed and paid the tax that was due.
If a taxpayer meets one of the above criteria they should file Form IN-40SP. The DOR asks that taxpayers mail Injured Spouse Relief requests to:
Indiana Department of Revenue
Returns Processing and Operations
P.O. Box 7207
Indianapolis, IN 46207
Or, Fax to 317-615-2697
You may also qualify for Injured Spouse Relief in cases where the Indiana DOR seizes your tax refund to cover your spouse's debts such as unpaid child support. If you're worried that the DOR is going to seize your refund for your spouse's debt, you can indicate that when you file your state tax return. Then, the DOR will contact you about the next steps to take. Alternatively, if the DOR has already seized your refund, you can apply for relief by using the Injured Spouse form linked above.
Other Tax Resolutions
Challenge the Assessment
If the tax liability is the result of an assessment made by the DOR the taxpayer has 60 days from the date on the first notice issued to protest the amount due. The DOR names the first notice “A Proposed Assessment Bill (AR-80/NOPA).” If this does not resolve the matter the taxpayer may request a hearing by writing to the DOR legal division. If the protest is ultimately denied the taxpayer may appeal to the Indiana Tax Court.
If you miss the 60-day window, the DOR says that you lose your right to protest. In this case, you should pay the tax owed, and then request a refund to dispute the liability. Appealing Indiana tax assessments can be complicated, and you may want to work with an Indiana tax pro through the process.
Taxpayers may want to consider speaking to a bankruptcy attorney if they have significant personal liabilities in addition to their taxes. Generally, taxpayers can discharge some state tax liabilities through bankruptcy proceedings. However, taxpayers should seek the advice of an experienced tax and bankruptcy attorney if they believe this option is right for them.
The Indiana Tax Amnesty Program
In 2015, Indiana offered a “Tax Amnesty Program.” The program was available for individuals and businesses with unreported or underreported income tax. Consequently, tax Amnesty allowed these taxpayers to file any unfiled returns and/or pay any associated liabilities or underreported liabilities free of penalty, interest, and collection fees. Taxpayers currently can not apply for this program. However, delinquent taxpayers should take advantage of the program if it opens again in the future.
Consequences of Unpaid Taxes in Indiana
If you don't pay your taxes by the due date or if you don't pay an assessment by the due date, the DOR will send you a demand for payment. Once you receive the demand, you have 20 days to pay, or the DOR will start other collection actions. You can drag out the timeline a bit by paying a third of the assessment by the 20-day deadline. Then, the DOR will send you another notice. As long as you pay half of that by the 20-day deadline, you'll receive a third notice. You must pay the entire amount shown on that notice by the 20-day deadline if you want to avoid collection actions. Here is what can happen if you don't pay your Indiana tax liability.
Tax Liens or Warrants
If a tax liability becomes past due, the DOR will send two preliminary collection notices to the taxpayer before it pursues other collection actions. The first collection action that the DOR will initiate is to file a tax warrant with the County Clerk of any county where the taxpayer owns property.
Taxpayers should not confuse a tax warrant with a warrant for arrest. The warrant is another term for a tax lien. It secures the state's interest in your property, and it creates an immediate lien against any vehicles registered to you. The DOR also sends the warrant to either a collection agency or the county sheriff. The collection actions that the sheriff may take under the authority of the tax warrant include auctioning off your property, garnishing wages, and/or levying bank accounts. If your bill is placed with a collection agency, the agency can levy your bank account or garnish your wages.
Failure to File and Pay Penalties
The failure to file a tax return and failure to pay tax penalties represent the main penalties that taxpayers should know about. If you don't file and the DOR has to generate a tax return on your behalf, the failure-to-file penalty equates to 20% of the tax shown on the return. The failure to pay tax penalty represents 10% of the unpaid tax liability or $5, whichever is greater. You can incur a 100% penalty if the DOR believes that you didn't file a tax return because you were trying to evade paying taxes.
Taxpayers should consider escalating contentious issues to a manager within the DOR. Generally, the authority and experience of a supervisor can help resolve problems. If, after speaking with a supervisor, the taxpayer still believes that he/she is not being heard, is being discriminated against or having their rights violated, or Indiana law is not being followed, they should contact the Taxpayer Advocate Office (TAO).
Indiana Taxpayer Advocate Office
In addition to other duties already discussed, the Taxpayer Advocate Office in Indiana serves to assist taxpayers with complex tax issues. The TAO can help you apply for hardship status or an offer in compromise. They can also assist you if you are an active duty service member materially affected by tax debt collection. Moreover, they protect taxpayers’ rights and help to ensure that the DOR fairly administers its programs and processes. The TAO is part of the DOR, but it works independently. If you need assistance from the Indiana tax advocate office, you can read this guide on the Indiana TAO.
Taxpayers should not ignore resolved tax liabilities. In addition to the penalty, interest, and collection fees, reasonable outstanding tax balances can quickly balloon into crippling liabilities. Not to mention, taxpayers run the risk of having their assets seized and sold. Moreover, they can also face wage garnishments, and/or have their bank accounts levied. Therefore, taxpayers should address delinquent tax obligations as quickly as possible. Furthermore, they should seek help from a qualified licensed tax professional with experience in solving tax problems with Indiana's Department of Revenue. A tax professional can determine which course of action is most appropriate for their situation. Alternatively, you can find qualified tax professionals by doing a search below.