South Carolina: Tax Resolution Options and Consequences of Back Taxes
The South Carolina Department of Revenue (SCDOR) collects individual income tax, estate tax, and other personal and business taxes. If you have unpaid taxes, the SCDOR can place liens on your property, garnish your wages, revoke business licenses, or take other collection actions.
However, the department is also willing to make arrangements with taxpayers who have unpaid state tax liabilities. This guide looks at the tax resolution options in South Carolina, and then it explains what the SCDOR can do if you don't pay your tax bill.
Tax Resolution Options for South Carolina Back Taxes
If you have back taxes in South Carolina, you may be able to make various arrangements. The SCDOR offers payment plans, offers in compromise, and other tax relief programs to delinquent taxpayers.
Here are the main options for people who owe back taxes in South Carolina.
The SCDOR allows both individuals and businesses to make payments on their tax liabilities. To qualify, you must have received a notice to request a Payment Plan Agreement, and you cannot have an active garnishment or levy from the SCDOR.
Payment plan terms vary based on how much you owe. Individuals can get up to 48 months to pay off their tax bills, but businesses need to contact the SCDOR directly. You can request a payment plan online or by emailing Brian at Brian.Smith@dor.sc.gov.
An offer in compromise lets you pay off your tax bill for less than you owe, and the SCDOR accepts offers in compromise due to doubt as to collectibility and economic hardship.
Doubt as to collectibility refers to situations where the department doubts it will ever be able to collect the tax liability. Economic hardship applies in situations where the taxpayer can't pay due to exceptional circumstances. It also applies if paying the bill would place undue hardship on the taxpayer.
You can apply for an offer in compromise using Form SC656 (Application for Offer in Compromise). This PDF contains the instructions, application, and a list of supporting documents. It also includes Form SC433A (Collection Information Statement for Individuals) and Form SC433B (Collection Information Statement for Businesses).
Innocent Spouse Relief
The SCDOR offers innocent spouse relief to taxpayers who need relief from tax liabilities due exclusively to their spouse or former spouse. You can apply for innocent spouse relief if you have received a proposed assessment or had a tax refund applied to a tax liability for which your spouse was liable. To apply, use Form SC8857 (Request for Innocent Spouse Relief).
The Internal Revenue Service (IRS) will stop collection activity on your account if you qualify for hardship or currently not collectible (CNC) status. Unfortunately, the SCDOR does not advertise a similar program, but the state may be willing to accept offers in compromise from taxpayers experiencing economic hardship.
Economic hardship is for people who cannot pay their tax liabilities due to exceptional circumstances. You may also qualify if paying the tax liability in full would place unfair economic pressure on you.
Penalty Abatement on South Carolina Taxes
In South Carolina, you can apply for penalty abatement using Form C530. This concise form requires basic contact information and details about the tax you owe. Then, it prompts you to explain why the SCDOR should waive your penalties.
The application requests you to back up your request with relevant parts of the tax code. You may want to work with a tax professional to improve your chances of success.
South Carolina Tax Appeals Process
If you disagree with a tax assessment, you can file a protest with the SCDOR. The SCDOR Appeals Section and the SCDOR Litigation Section will review your protest. The Litigation Section will issue a Department Determination, and if you still disagree, you can request a contested case hearing.
At the time of writing, South Carolina does not have an active tax amnesty program. The SCDOR offered amnesty in 2015.
However, the state does have a voluntary disclosure program. If you haven't been paying or filing South Carolina taxes, you can come forward using this program, but you only qualify if you initiate contact. Once the SCDOR contacts you about the tax, you no longer qualify for voluntary disclosure.
The SCDOR still applies interest to your balance when you use this program, but the department waives all penalties. Additionally, in most cases, the SCDOR will only look back for three years or less. In other words, if you come forward voluntarily, you typically shouldn't have to worry about any taxes that are more than three years old.
Back Tax Enforcement Actions
In South Carolina, the SCDOR has the right to take a range of collection actions against taxpayers who have not filed returns or paid their tax bills. The SCDOR also collects unpaid bills for state agencies, institutions of higher learning, housing authorities, political subdivisions, and other governmental entities of U.S. states through its Governmental Enterprise Accounts Receivable (GEAR) program.
Whether you owe state taxes or liabilities through GEAR, the SCDOR may use the following collection actions against you.
The SCDOR may place a tax lien on your real or personal property if you have unpaid taxes. A tax lien refers to the state's legal right to your assets, and once in place, it is active for ten years. During this time, you cannot sell your property or receive a clear title.
To remove a South Carolina tax lien, you must pay your tax bill in full. The state also publishes a directory of all state tax liens on the SCDOR's website. Typically, the SCDOR only files liens once the opportunity for appealing the tax bill has passed, but if you believe the SCDOR filed a lien in error, you should email the SCDOR at ComplyToday@dor.sc.gov.
A tax levy is when the state seizes your assets to satisfy an outstanding tax liability. In South Carolina, the state may levy your wages, bank accounts, investment accounts, and contract payments.
For example, if you are an independent contractor and a client owes you money, the SCDOR may contact your client and have them send your payment directly to the department. Similarly, if you are a vendor and a business owes you money for products or services, the SCDOR may contact that business and request your payment.
The SCDOR can garnish 25% of your gross wages. The 25% refers to wages before taxes, health insurance premiums, retirement contributions, or other deductions.
In addition to placing levies for state taxes, the SCDOR may also be able to garnish your assets for bills from other entities such as state agencies, public and private institutions of higher learning, and housing authorities.
The SCDOR assesses a range of different penalties on taxpayers who fail to file returns or pay their tax liabilities. If you file late, you face a failure-to-file penalty of 5% of the balance each month, up to 25%. The failure-to-pay penalty is 0.5% of the balance due, and the SCDOR assesses this monthly until you pay your balance or the penalty reaches 25% of the balance.
In South Carolina, total penalties on your account can reach up to 50% of your balance. The SCDOR has an online calculator that will show your penalties based on your filing due date and when you plan to pay and file. The easiest way to get this information is by creating an account on MyDORWAY.
The SCDOR also assesses interest on outstanding tax liabilities. The department uses the IRS's interest rate. The IRS changes its interest rate quarterly, and it uses the federal short-term rate plus 3%.
Other Tax Collection Enforcements
The SCDOR publishes a list of the top 250 delinquent individuals and the top 250 delinquent businesses every quarter. It does not include taxpayers who have filed for bankruptcy or set up payment plans.
The department also revokes business licenses from businesses that do not pay their tax bills or make arrangements on their outstanding tax liabilities. Businesses that continue operating after a license revocation may face a penalty of $500 per day.
Common Notices Sent by the SCDOR
The SCDOR sends a variety of notices to taxpayers with outstanding tax liabilities. The state uses notices to alert taxpayers about the following issues:
- Tax balance due.
- Increase or decrease to the taxpayer's refund.
- Request for additional information related to a tax return.
- Changes made to the taxpayer's return.
- Identity verification.
All of the SCDOR's notices should explain how much you owe, your resolution options and the state's plans to take additional collection actions. Notices also contain information on how to contact the SCDOR.
Statute of Limitations on SC Tax Collection
The SCDOR has three years from the date the return was due or filed to assess taxes, and the clock starts running on the latter of these dates. This statute of limitations does not apply if there was fraudulent intent or if the taxpayer underreported the tax due by 20% or more. The SCDOR has up to 72 months (six years) to assess the tax in these cases.
Once the tax has been assessed, the SCDOR typically has ten years to place a lien on a taxpayer's assets, and the lien can stay in place for ten years. For example, if someone files but doesn't pay a tax return in 2020, the SCDOR has until 2030 to place a lien. If the SCDOR places the lien in 2030, the lien can remain in place until 2040.
Get Help With South Carolina Back Taxes
If you owe back taxes in South Carolina, the SCDOR can use a lot of different tactics to collect your bill. To avoid wage garnishment, property levies, or other enforcement actions, you should reach out to the SCDOR and make arrangements on your account as soon as possible.
Unfortunately, dealing with the SCDOR on your own can be confusing and frustrating. For best results, you may want to work with a tax professional. To learn more about the best options for your situation, contact a tax professional experienced with the SCDOR today. Also, you can see the top-rated professionals that help with South Carolina DOR tax problems below as well as top-rated tax pros by designation type located in South Carolina.