Ohio State Back Taxes Options or Resolutions
The State of Ohio has a multi-faceted approach for dealing with unpaid income tax or Ohio state back taxes. The Department of Taxation is responsible for the collection and administration of the Ohio tax code. However, the Attorney General’s office is responsible for collections enforcement. Further, the Attorney General’s office employs private collection firms, called “special counsel,” who perform most of their collection activities. The AG’s office gives private collection firms the full power of the Attorney General while handling their collection matters.
Ohio State Individual Tax Options
Taxpayers who owe back income taxes to the State of Ohio have three or four main resolution options. These options are available for taxpayers to reach a reasonable resolution to their delinquent tax liability. These are:
Installment Agreement (Payment Plan)
An Installment Agreement is also known as a payment plan. It is an arrangement where the taxpayer reaches an agreement with the State of Ohio to make monthly tax payments. The taxpayer makes payments until they satisfy their past-due tax liability. You can read more about Ohio State tax payment plans here.
Offer in Compromise (OIC)
An Offer in Compromise is a program where a taxpayer may offer to settle their delinquent tax liability. Generally, the taxpayer pays less than the amount owed. In Ohio, the state may grant an Offer in Compromise for Economic Hardship, including innocent spouse relief, and Doubt as to Liability. In limited instances, the state may approve an OIC if a substantial probability that the claim, if collected, would be subject to refund under the Department of Taxation’s statutes, rules or regulations. Find out more information here.
A request for Penalty Abatement is a written request asking the State to waive some, or all, of the tax penalties assessed. Just like the IRS, the state permits taxpayers sometimes to reduce specific tax penalties. You can read more about it here.
Innocent Spouse Relief
Under Ohio law, if there is a joint assessment of spouses for personal income tax and one of the spouses has been granted relief from the joint assessment under I.R.C. § 6015, there is a rebuttable presumption that this spouse is entitled to similar relief for any Ohio assessment of the same liability. The spouse must complete an Offer in Compromise application. Furthermore, they must include all correspondence with the IRS related to the innocent spouse relief. Moreover, this includes all tax returns, including all attachments, for the tax years in question.
Ohio will still consider innocent spouse relief for those who have not received similar tax relief from the IRS. However, the taxpayer must seek that relief by filing an Offer in Compromise Application under Doubt as to Liability circumstances.
Alternative Options That May Be Available
Challenge the Assessment
If the taxpayer has a proposed assessment for additional income tax due as a result of an Ohio Department of Taxation audit, they have the opportunity to appeal the proposed assessment. The taxpayer may first appeal to the Department of Taxation Appeals Office. Therefore, an informal hearing will be conducted, usually via telephone, with a tax attorney from the Department of Taxation.
If the taxpayer cannot resolve the tax issue with the Department of Taxation Appeals Office, the taxpayer may appeal to the Board of Tax Appeals. The Board of Tax Appeals is an administrative, judicial body that works in a formal, courtroom-type manner. A taxpayer may represent themselves in front of the Board of Tax Appeals. However, a taxpayer should hire a licensed attorney who has experience practicing in front of the Board of Tax Appeals.
The Attorney General’s office represents the Department of Taxation for cases in front of the Board of Tax Appeals. The taxpayer will have the opportunity to settle with the Attorney General’s office attorney. However, if the taxpayer cannot resolve the tax issue with the AG, the taxpayer will proceed for a hearing in front of the Board. The Board will then issue a ruling based on the evidence presented. The Board will apply Ohio law to the facts of the case. Fortunately, taxpayers can appeal the decisions of the Board of Tax Appeals to the Ohio Appellate Courts.
Bankruptcy can be a costly endeavor. Therefore, this option is likely only practical for taxpayers who have significant personal liability in addition to their delinquent taxes owed. Generally, taxpayers may discharge state taxes through bankruptcy proceedings. Taxpayers should seek the advice of an experienced bankruptcy attorney before pursuing this option.
The Ohio Tax Amnesty Program
From January 1, 2018, through February 15, 2018, the Department of Taxation had a “Tax Amnesty Program.” The program was available for individuals and businesses with unreported or underreported income. As a result, if these taxpayers enrolled in the program, the Department of Taxation would waive all penalties and only assess half interest if the taxpayers filed, or corrected, their returns and paid the entire tax due. The state does not currently offer this program. However, if the State decides to reopen the Program, delinquent filers should take advantage.
As discussed herein, Ohio law does not provide taxpayers with the right to appeal determinations of the Attorney General or Department of Taxation concerning the collection of taxes owed. However, there are a couple of practical tips that the taxpayer, or their representative, should follow in an attempt to reach a reasonable resolution.
First, do not be afraid to escalate contentious issues to a manager at the Attorney General’s office or the Department of Taxation. Often, a fresh set of eyes and the authority and experience of a supervisor can help resolve some issues.
Second, if you believe that your case manager is not following Ohio law, or discriminating against you, file a request for an investigation. Do this in writing, with the Department of Taxation Problem Resolution Office. The Problem Resolution Office serves as a liaison between the Department of Taxation and taxpayers when the usual lines of communication break down or when a problem remains after attempts to solve it through designated channels have failed.
The Attorney General’s office will release tax liens only after the taxes owed, including any penalties, interest or collection fees, have been paid in full or satisfied through an Offer in Compromise Agreement. The Attorney General’s office will forward to the taxpayer a certificate of release for the tax lien in question. The taxpayer must file this certificate of release with the court where the tax lien is filed to release it officially. Taxpayers often overlook or misunderstand this.
Statute of Limitations
The first factor to review before considering a possible resolution is to determine the taxpayer’s legal rights under Ohio law concerning the statute of limitation rules for the collection of taxes owed.
In Ohio, the Attorney General’s office may file a tax lien against the taxpayer in their residential county. It is generally filed for any taxes owed that has been certified to them by the Department of Taxation. The AG’s office has seven years from the date of the original tax assessment to begin legal proceedings to collect the taxes. This is different from the IRS. These proceedings include garnishment of bank accounts, garnishment of wages, and garnishment of certain retirement or investment accounts. It can also include foreclosures or conducting a debtor’s examination through the Court. If the AG’s office fails to begin proceedings to collect the taxes owed within the seven years, they are time-barred from ever being able to use these enforced collection methods.
Unfortunately, this does not affect the status of any tax lien filings. Under Ohio law, tax lien filings have a separate statute of limitations. This limitation only requires the State to refile the lien every 15 years. Furthermore, they may keep the tax lien active for up to 40 years. Therefore, even if the State may be time-barred from conducting an enforced collection of a delinquent taxpayer, they may still keep the tax lien on the taxpayer’s property for up to 40 years. Naturally, this creates an undesirable position for many taxpayers. The taxpayer may still need to resolve the situation with the State despite the fact they are protected by statute from garnishments, foreclosures, and other enforced collection measures.
Consequences of Unpaid Ohio Taxes
If you don't file or pay your Ohio state taxes, the Department of Taxation can certify your tax debt to the Secretary of State. At that point, the Secretary of State or the collection agency assigned to your account can initiate several types of collection actions against you. Here's what happens if you don't pay or file.
Penalties and Interest
The state can assess a failure-to-file penalty of 5% of the tax due or a minimum of $50. This penalty applies monthly for up to 10 months, meaning that it can reach up to half of your tax bill or $500 whichever is larger. Ohio also charges interest on unpaid taxes. The interest rate for most state taxes is the federal prime rate from July of the previous calendar year plus three points.
The Secretary of State can issue a tax lien against you for unpaid taxes. A tax lien is a legal claim to your assets. It exists as a public record, and if you sell assets or apply for loans, the buyer or lender will know that a lien is in place. As indicated above, as long as the tax lien gets filed before the statute of limitations expires on your tax debt, it lasts for 15 years. It can also be renewed so that it lasts for up to 40 years.
To give you an example, imagine that you sell a car for $20,000. You owe $5,000 on a car loan and you have an Ohio tax lien for $10,000. The proceeds of the sale will satisfy the car loan and the tax lien, and you will get the remaining amount. Alternatively, imagine that you try to take out a home equity line of credit but the lender sees that you have a tax lien against you so they deny your application.
The state can also garnish your wages if you have unpaid taxes. If this happens, the state will send a notice to your employer about your delinquent taxes. Your employer will then withhold some of your pay and send it to the state to cover your tax bill. This can be very embarrassing and financially stressful.
Depending on the situation, the state may also seize your assets or take the funds from your bank account. To avoid collection actions, you should try to resolve your state tax debt as soon as you can. It's always better to contact the state and proactively make arrangements than it is to wait for the state to take action against you.
In conclusion, taxpayers have many tools at their disposal when dealing with tax liabilities with the State of Ohio. With that said, Ohio has a very government-friendly statute of limitations to conducting enforced collection. Additionally, the penalty, interest, and collection fees system results in reasonable taxes ballooning into crippling liabilities. Therefore, taxpayers should consult with a qualified tax professional as soon as these problems arise. A tax professional can help determine which course of action is most appropriate for their situation. Click the aforementioned link or start your search below to find the tax professional that best fits your needs.
Disclaimer: This article is not legal or tax advice. This article should not be used as a substitute for the advice of a competent attorney or tax professional admitted or authorized to practice in your jurisdiction.