Tennessee: Tax Resolution Options and Consequences of Unpaid Taxes
The Tennessee Department of Revenue (DOR) is responsible for administering tax laws and collecting taxes in Tennessee. The Tennessee DOR collects business tax, franchise and excise tax, inheritance tax, professional privilege tax, sales and use tax and several other types of taxes.
If you have unfiled returns or unpaid taxes in Tennessee, the Collection Services Department of the Tennessee DOR may pursue collection activities on your account. This guide explains the resolution options for delinquent taxes in Tennessee, and it goes over the collection activities used in this state so you know what to expect.
Delinquent Tax Resolution Options in Tennessee
To protect yourself and your business, you should make arrangements to pay delinquent taxes as soon as possible. Tennessee offers the following tax resolution options.
Tennessee taxpayers who owe at least $300 in delinquent taxes may be able to set up a payment plan. An installment plan agreement (IPA) lets you pay off your tax bill in monthly installments over a two to 60-month time period, but you must meet specific criteria to qualify.
An offer in compromise (OIC) is when the state agrees to settle your tax liability for less than you owe. To qualify, you must convince the state that you are unlikely to be able to pay the balance in full now or at any time in the next five years. The application process for an OIC is detailed and time-consuming.
Innocent Spouse Relief
Because Tennessee does not have an individual state income tax, the state does not offer innocent spouse relief. However, Tennessee residents who owe a federal tax liability exclusively due to their spouse or ex-spouse may qualify for innocent spouse relief on the federal level.
Additionally, taxpayers who have lost their federal refunds due to their spouse's liabilities, such as unpaid child support, may be able to use injured spouse relief to reclaim their portion of the tax refund.
The Tennessee DOR does not offer tax relief based on hardship status. However, state law does offer property tax relief for elder or disabled homeowners and disabled veterans and their surviving spouses.
The Tennessee Department of Revenue offers waivers for penalties assessed due to unfiled returns, unpaid taxes, and underpaid taxes. You may also be able to get a waiver for penalties incurred for not filing returns electronically when the DOR requires them to be filed electronically.
As long as the penalties aren't due to disregard of the law or gross negligence, you may qualify for a waiver if you have reasonable cause and a positive filing record for the last two years. You also must have already paid the delinquent tax.
You can apply for a penalty waiver through the Tennessee Taxpayer Access Point (TNTAP) or email a Petition for Waiver of Penalty to firstname.lastname@example.org. The Attorney General must approve penalty waivers of $100,000 or more.
The application requires your name, Employer Identification Number (EIN) or state tax account number, the tax period, the date the tax was paid, and the penalty amount. Then, you must explain why your taxes were delinquent and why the penalties should be waived.
If you receive a proposed assessment, you have the right to request an informal conference or file a suit in the relevant chancery court. You must request the informal conference in writing within 30 days of receiving the assessment, and if you don't take action, the proposed assessment becomes final on the 31st day.
At the conference, you can discuss the proposed assessment and the final assessment and denial or deemed denial of a claim for refund. You may be able to resolve your concern without an informal conference if any of the following apply:
- You received an estimated assessment.
- You filed a return but didn't pay the tax reported due on the return.
- You closed your business but didn't close your tax account.
- You were assessed a penalty, but no additional tax was due — in this case, you may need to submit a penalty waiver request.
The Tennessee DOR will contact you within ten days of receiving your request to set up an informal hearing. You cannot appeal tax based on your information on a tax return. The appeal's process only refers to assessed taxes.
If you disagree with the final assessment, you have 90 days to file suit in chancery court in the county where you reside or perform the majority of your business activities. Note that you don't have to go through an informal conference first — you can file a suit at any time after your assessment is final.
If you don't file a suit within 90 days of the final assessment, you can pay the assessment, request a refund, and then file a suit when the refund is not paid.
Interest will continue to accrue on your tax bill after requesting an informal conference or filing a suit. The state may also place a lien on your assets, but it will not apply any state tax levies until after the conference or the lawsuit.
Tennessee does not have a tax amnesty program at the time of writing, but the state does offer a Voluntary Disclosure Agreement. These agreements are available for any tax administered by the DOR, but the DOR must not have contacted you about the tax to qualify.
You agree to pay your prior tax liability and register to make payments for future tax periods by signing a Voluntary Disclosure Agreement. In exchange, the DOR agrees to give you a limited lookback period and reduce or waive penalties. For example, if you agree to pay the last three years of taxes that you missed, the DOR may agree to not look at any years prior to that time period. Note these are just sample numbers.
To apply for this program, you should write a letter explaining the situation and email it to email@example.com or mail it to the Audit Division - Discovery Unit, P.O. Box 190644, Nashville, TN 37219.
Collection Enforcement Actions for Delinquent Tax in Tennessee
Tennessee uses a variety of techniques to collect delinquent taxes. The state typically sends several notices before turning to collection activities. To protect yourself, your business, and your assets, you should try to make arrangements as soon as possible to avoid collection actions. Here are the collection actions used by the Tennessee DOR.
A tax lien is when a taxing entity places a lien on your assets, and if you sell the assets, part or all of the proceeds go to the lienholder. The DOR has the right to place liens on your assets if you have delinquent taxes. Typically, liens do not start until about 120 days after receiving the original Notice of Proposed Assessment.
A tax levy is when the government seizes your assets to pay delinquent taxes. Levies may include garnishing your wages, taking the funds in your bank account, or selling your assets. The Tennessee Taxpayer Bill of Rights says that the DOR must provide you with a notice at least ten days before enforcing a levy on your assets and at least 30 days before liquidating your seized assets.
Tax Penalties and Interest
The Tennessee DOR charges a penalty of 5% of the unpaid tax for every month or part of a month that the tax is unpaid, up to 25%. For instance, if you owe $1,000 in tax, you incur a $50 penalty every month it is late, and the penalties may go up to $250. In contrast, if you owe $2,000, the monthly penalty is $100, and it can get up to $500.
Interest also accrues on delinquent taxes in Tennessee. On most accounts, interest starts accruing when the tax is due, but on unpaid inheritance tax, interest starts accruing within nine months after the decedent’s death. As of October 2021, the interest rate is 7.25% (effective until June 30, 2022), but if you're making payments through an installment agreement, the interest rate is 9.25%.
Notices for Delinquent Taxes in Tennessee
The DOR sends taxpayers a Notice of Proposed Assessment if they have unpaid taxes due to a filed return, an estimated return, or an audit. If they don't respond, the DOR will create a collection case and send a Final Demand for payment about 45 days later.
The Final Demand for Payment explains how much the taxpayer owes and what returns they need to file. It also says the DOR may pursue collection actions such as liens and levies if the taxpayer doesn't respond within ten days.
At that point, a revenue collection agent will try to reach the taxpayer over phone, email, or even text to resolve the issue. If they cannot get a resolution, the DOR will send an Intent to Levy or Lien letter. This letter typically comes about 110 days after the Notice of Proposed Assessment, and it gives the taxpayer two weeks to make arrangements on their tax liability.
Statute of Limitations
In Tennessee, the statute of limitations on tax collection is six years. The six-year collection period pauses upon the imposition of a bankruptcy stay or any other proceedings that prohibit collection activities, but it resumes once the end of the proceedings.
The six-year period starts on January 1 of the year during which the taxes were incurred, but if a return was required, taxes should be assessed within three years from December 31 of the year the return was filed. No collection actions can be taken at the expiration of that period.
Suppose the IRS adjusts a taxpayer's income in a way that leads to the taxpayer owing franchise, excise, or estate tax. In that case, the collection statute expires two years from when the commissioner notified the taxpayer of the revision. The statute of limitations doesn't apply to ad Valorem taxes.
Get Help Resolving Tax Issues in Tennessee
If you're having trouble dealing with the Tennessee DOR, you should contact a tax professional. A tax specialist experienced with Tennessee tax laws and resolution methods can help you negotiate a payment plan, appeal a proposed tax, or address other tax concerns. At TaxCure, we have a unique ranking algorithm to help taxpayers find the best taxpayer to help with their unique problem. You can view the results here of the top tax professionals that help with Tennessee tax problems.