Oregon Back Taxes: Consequences and Resolution Options
The Oregon Department of Revenue (DOR) collects and administers personal and business income tax in the state. If you don't file or pay your state taxes, the DOR can take collection actions against you. However, the DOR also has several programs to help taxpayers get out of tax debt.
To help you out, this guide provides an overview to Oregeon's tax resolution programs. Then, it outlines what can happen if you don't pay taxes in Oregon. To get help now, reach out to a tax pro from Oregon today.
Tax Relief Programs in Oregon
If you can't afford to pay your Oregon state taxes, don't despair. The DOR offers several different options to help taxpayers get caught up on their back taxes. There are also relief programs for people experiencing financial hardship or dealing with taxes incurred by their spouse without their knowledge. Here are the main options.
Payment Plan on Oregon Back Taxes
The Oregon Department of Revenue offers payment plans to people who can't afford to pay their tax liabilities in full. You can set up a payment plan with Revenue Online, or contact the Department of Revenue directly to request payments. If your account has been assigned to a private collection agency, you need to contact them to request a payment plan.
Generally, if you can pay off the balance within 36 months, the Department will approve your payment plan request. If you need more time, you will need to complete Form OR-SFC (Statement of Financial Condition). The OR DOR website doesn't outline conditions for the payment plans, but in most states, you need to stay compliant with filing and paying taxes to get a payment plan approved.
Oregon Settlement Offer
If you can't afford to pay your tax bill, the state may be willing to settle it for less than you owe. This is similar to the IRS's offer in compromise program. However, unlike the IRS, the OR DOR will only let you have one settlement offer in your lifetime -- the DOR is very strict about this. Because you only have one chance to take advantage of this program, talk with a tax professional to make sure that this is the right choice for your situation. Generally, you will only qualify if you don't have disposable income to make payments or assets to liquidate.
You must be an individual to apply for a settlement on your tax debt. Unlike the IRS, the Oregon DOR doesn't let businesses settle taxes. To apply, use Form OR-SOA (Oregon Settlement Offer Application). This form requests detailed information about your income, assets, bills, and debts. According to the Oregon Department of Revenue, the application process takes about three hours, but it can take longer. You will also need to send in supporting documentation, and you can only qualify if you're compliant with tax filing and payment regulations. You must also meet the following requirements:
- You must offer something -- you cannot make a $0 settlement offer.
- You must make a non-refundable good faith payment of 5% of the amount offered.
- Your appeal rights for the tax debt must have expired.
- You cannot be involved in an active bankruptcy case or in litigation.
- When you apply, you agree that the DOR can contact third parties to verify the information presented in the settlement offer.
If accepted, you must pay the offer in full within 30 days or set up a 12-month payment plan. Additionally, you must stay compliant with filing and paying your state taxes for three years following the date that the offer is paid in full, and if the DOR has issued a lien for your tax debt, it will only be removed after you have stayed compliant for three years.
Unfortunately, if the DOR denies your settlement offer, you cannot appeal. There are no appeal rights to this decision. That's why it's critical to work with a professional to ensure that you take the best approach with your application.
Innocent Spouse Relief
When you file a joint tax return with your spouse, you are jointly responsible for the tax liability. However, in rare cases, you can get relief from your spouse's portion of the tax liability through the Oregon innocent spouse relief program. To qualify, you must meet the following criteria:
- You and your spouse filed a joint return.
- Your spouse understated tax on the return.
- When you signed the return, you didn't know that your spouse had underreported the tax.
- It would be unreasonable for the state to hold you responsible for your spouse's tax liability.
An understatement of tax occurs when someone underreports their income or claims deductions or credits that they aren't entitled to. For instance, if your spouse was running a side business without your knowledge and they didn't report any of the income, you might qualify for this type of relief.
Temporarily Uncollectible Status
You can apply for temporarily uncollectible status if you're experiencing a temporary hardship such as a job loss or short-term disability. If you qualify, the state will stop collection actions against you. However, the DOR can still seize your tax refund to cover your tax debt, and it may issue a lien against you.
When the state marks your account as temporarily uncollectible, it expects you not to incur any additional tax debt. If you file a new state return that shows you owe tax, you will be removed from this program if you don't pay the bill in full by the due date. If that happens, the DOR will expect you to pay the full amount that you owe, and if you don't, they will pursue collection actions against you.
Suspension of Collection Activity Due to Hardship
The above program just offers temporary relief, but the if the following are true, you can get the DOR to suspend collection actions until your situation changes:
- Household income under 200% of the poverty line.
- Less than $5,000 in assets.
- Only income is exempt from garnishment.
To put this into perspective, a family of three is below 200% of the federal poverty line if they earn $46,060 or less. As of 2022, Oregon doesn't include your home and one vehicle in your asset count.
If you qualify for this hardship program, the state may still issue a lien against you, and interest will continue to accrue on your debt. Additionally, the DOR can seize state and IRS tax refunds to cover your tax bill, and if you incur any new tax debt, collection actions will resume on your account.
If you incurred penalties on your account, you may be eligible for a penalty waiver. Write a letter to the DOR explaining why you paid or filed late, and if the state thinks you have a reasonable cause, it may waive the penalties. In most cases, the state will not waive interest from your account.
What Happens If You Don't Pay Oregon Taxes?
If you don't pay your state taxes, the Oregon DOR can enforce collection actions against you. The state can garnish your wages, seize your assets, and more. Here is an overview of what happens when you don't pay taxes in Oregon.
Tax Liens for Oregon Tax Debts
The OR DOR can file a tax lien against you if you have unpaid taxes. First, the state issues a Distraint Warrant. Then, if you still don't pay, the state issues a tax lien.
The lien attaches to all of your current and future assets. The state can also issue a Uniform Commercial Code (UCC) lien which attaches to your business assets. Once the state issues a UCC lien, it has the right to seize your business property to recoup your unpaid tax bill. You can generally avoid a lien by setting up a payment plan.
If you don't pay your taxes, the state can garnish your wages, bank accounts, or third-party payers. Take a look at the details:
- Wage garnishment — The state can send a notice to your employer requesting them to withhold up to 25% of your take-home pay.
- Bank garnishment — The state sends a notice to the bank to seize all of the funds in your account, up to the amount of your tax debt plus interest, penalties, and fees.
- Third-party garnishment — The state sends a garnishment notice to a third party that holds your assets. This may include stocks, securities, and rental income. It can also include payments you receive from processing credit cards at your business and accounts receivables for your business.
If you disagree with a wage garnishment, you have 120 days to submit a Challenge to Garnishment. You have 30 days for all other garnishments. Then, the DOR will review the situation. If the DOR upholds the garnishment, you have 90 days to request a Garnishment Challenge Denial Hearing Request.
The state also has the right to seize your assets for unpaid taxes. The DOR can seize RVs, motorcycles, and other personal property, but it will not take your primary residence. If you own a business, the state can seize your safe deposit box and money from your cash registers.
Tax Penalties Charged
The state assesses the following penalties when taxpayers don't pay or file:
- 5% failure-to-file penalty for missing the filing due date.
- 5% failure-to-pay penalty for not paying the tax on time.
- Additional 20% failure-to-file penalty if you haven't filed within three months of the due date.
- Additional 25% failure-to-file penalty if you don't file within 30 days of receiving a Notice of Assessment for failure to file.
- 100% failure-to-file penalty when returns aren't filed for three consecutive years.
- $100 penalty for not filing annual reports such as Form WR or the transit tax annual report by the due date.
- 5% underpayment penalty if you underpay quarterly commercial activity estimated quarterly taxes.
- 5% non-qualified withdrawal penalty for unqualified withdrawals from first-time homebuyer savings accounts.
The penalties apply the first day you are late. For instance, if you file a return a day late, you incur a failure-to-file penalty of 5% of the balance.
Professional License Suspension
The DOR can suspend your professional license if you don't pay your taxes. This can make it impossible to run your business. To avoid these types of collection actions, you need to be proactive about contacting the DOR and making arrangements on your tax debt.
Common OR DOR Collection Notices
Have you received a notice from the DOR in Oregon? Wondering what it means? Here is an overview of the department's most common notices:
- Notice of Assessment — You have late unpaid taxes. The full amount is due.
- Notice and Demand for Payment — This is a reminder that you have an unpaid tax bill.
- Notice of Distraint Warrant — The state is issuing a tax warrant against you. You will not be arrested. The warrant notes the state's legal claim to the tax debt, and if you still don't pay, the state will issue a tax lien.
- Notice of State Tax Lien — The state has issued a tax lien in the county where you live. This is a legal claim to your assets, and it acts like a judgment against you.
- Notice of Intent to Offset Federal Income Tax Refund — The OR DOR participates in the federal offset program, and if you earn a federal tax refund, the IRS will send it to the state to cover your tax debt.
- Notice of Intent to Offset Federal Payments — The state is planning to claim other federal payments through the offset program. This doesn't apply to Social Security payments, but it may apply to payments you receive as a federal contractor.
- Statement of Account — This just shows an overview of your tax debts and the amounts that you owe.
The Appeals Process in Oregon
You have the right to appeal determinations from the Oregon DOR. For instance, if the DOR audits your return and says that you owe money, you can appeal. You can also appeal decisions about collection actions such as wage garnishments. When the state notifies you about determinations, the notice will outline your appeal rights.
Typically, you must appeal within 30 days of receiving a determination. If you miss the 30-window for appeals or if you disagree with the response to your appeal, you can appeal to the Magistrate Division of the Oregon Tax Court. You have 90 days from the day of the notice to do so. You can appeal most determinations aside from penalty determinations.
If you miss the 90-day deadline, you can appeal to the Magistrate within two years of paying the tax, penalties, and interest. If you disagree with the Magistrate's decision, you can appeal to the regular division of the Oregon Tax Court.
Voluntary Disclosure Program
The OR DOR offers a voluntary disclosure program for businesses that are behind on their filing obligations. This program allows you to get back into compliance, and it minimizes the penalties you incur on your account. To qualify, you must not have been contacted by the OR DOR or the Multistate Tax Commission (MTC), and you must make a written request to the DOR.
Individuals can also make a voluntary disclosure to the state if they want to get caught up on state income tax returns. When you apply, you must explain why you didn't file your OR returns. You must also explain any specific requests or proposals that you're making and include a statement indicating if you've been contacted by the DOR or MTC.
Does Bankruptcy Eliminate Oregon Tax Debt?
Generally, you shouldn't turn to bankruptcy if you're just dealing with tax debt, but if you have a lot of other debts that you can't afford to pay, it can be an option to explore. When you file for bankruptcy, the courts will issue a stay, and the DOR will stop collection actions against you. For instance, if your wages are being garnished for taxes, the garnishment will stop.
Unfortunately, not all tax debts are eligible to be discharged in bankruptcy. Talk with your bankruptcy attorney or reach out to a tax pro to see if your tax debts qualify to be discharged. After you finish your bankruptcy case, you can set up a payment plan for any taxes that you still owe.
Oregon Statute of Limitations on Tax Debt Collection
In Oregon, there is no statute of limitations on tax debts that are collectible by warrant. However, once filed, liens expire after 10 years, but they can be renewed without losing any priority.
Get Help With Oregon Back Taxes
If you're struggling with personal or business tax debts in Oregon, you should reach out to a local tax professional. A CPA, enrolled agent, or tax attorney based in Oregon can help you deal with the Oregon DOR and the IRS. Use TaxCure to search for a tax pro today, and then, narrow down the results based on your tax program or the relief program that you want.