Utah Back Taxes: Resolution Options and Consequences of State Tax Debt
The Utah State Tax Commission administers and collects personal and business taxes in Utah. If you don't file returns or pay taxes, the Tax Commission has the right to collect the taxes owed from you forcibly. However, there are also many resolution options available.
This guide will give you an overview of the tax relief options in Utah. Then, it outlines what can happen if you don't pay your taxes. Finally, it explains how to find tax debt help in Utah.
Tax Debt Relief Options for Utah Back Taxes
The Tax Commission offers numerous options for people who can't afford to pay their state taxes in full. Depending on your situation, you may qualify for a payment plan (monthly payments on back taxes), an offer in compromise (settle your tax debt for less than you owe), or other relief options. Here is an overview of the state's relief options.
Payment Plan on Utah Back Taxes
If you can't afford to pay your state tax liability in full, you may be able to set up a payment plan. Both individuals and businesses can apply online or by contacting the Commission over the phone. Alternatively, you can use these forms to request a payment plan.
- Form TC-804 (Individual Income Tax Payment Agreement Request Form)
- Form TC-804B (Business Tax Payment Agreement Request Form)
Interest and penalties will continue to accrue on your account while you make payments, and if needed, the state can issue a tax lien against you. You must file all required tax returns, or the payment plan will go into default. Additionally, the state will keep any tax refunds and apply them to your tax debt until it is paid in full.
Utah Offer in Compromise
An offer in compromise is when the tax authority agrees to settle your bill for less than you owe. Utah may be willing to settle your tax bill if there is a doubt of collectibility or liability.
Doubt as to collectability applies when you can't afford to pay the tax bill and you don't have any assets to sell that could cover it. In this situation, the state will usually only accept an offer if it represents the same amount the Commission could get if it collected the tax bill through wage garnishments and asset seizures.
Doubt as to liability applies when there is a doubt that you owe the tax bill. This can be complicated to prove. It requires in-depth knowledge of state tax laws. You may want to hire a tax professional to help you.
In both cases, you can apply for an Offer in Compromise using Form TC-410 (Utah Offer in Compromise Request). Individuals also need to include Form TC-805 (Collection Information for Individuals), while businesses should submit Form TC-803 (Collection Information for Businesses. You must pay the settlement within 30 days if approved for an offer in compromise.
Utah Innocent Spouse Relief
Normally, when you file a tax return jointly with your spouse, you are both liable for all of the tax due on the return. However, if your spouse understates the tax due without your knowledge, you may qualify for Innocent Spouse Relief. This generally applies if your spouse underreported income or overclaimed deductions without your knowledge.
To apply, you can submit Form TC-8857 (Request for Innocent Spouse Relief). Or you can send a copy of IRS Form 8857 (Request for Innocent Spouse Relief). The Utah TC will also approve your request if you get Innocent Spouse Relief on your IRS taxes.
If your state tax refund was seized due to a state tax debt incurred by your spouse before you were married, you can get your portion of the refund back through Utah's Injured Spouse Relief program. To apply, you need to submit a copy of IRS Form 8379 (Injured Spouse Allocation) along with proof of your income and state taxes withheld. If your state tax refund was seized due to a debt to any other agency, you must apply for a refund from that agency.
You can apply for Injured Spouse Relief proactively if you believe that your state tax refund will be seized due to your spouse's tax debt. Simply attach a copy of IRS Form 8379 to your joint Utah return when you file it.
Penalty Abatement in Utah
The Utah State Tax Commission is willing to waive penalties if you have reasonable cause. Generally, reasonable cause refers to deaths, serious illnesses, natural disasters, or similar types of events that caused you to file or pay your taxes late. However, reasonable cause can also include mistakes, such as mailing a payment on time but to the wrong address. To request penalty waivers, contact the Commission and explain your situation, or ask a Utah tax pro to help you.
Appeals Process on Utah Tax Assessments
If you disagree with an assessment after a tax audit, you must appeal within 30 days of the date on the notice. Otherwise, the tax assessment becomes final.
Once you appeal, the Commission will set up a telephone conference call with an Administrative Law Judge. This call gives you a chance to explain your position and introduce any new information you have. If you cannot resolve your issue during this phone call, the issue will go to a hearing. If you don't agree with the Commission's decision from the Initial Hearing, you can request a Formal Hearing. You have 30 days to request a judicial review of the Commission's Formal Hearing. The decision from the judicial review is final.
Utah's Fresh Start Program
Utah has a Fresh Start Program. Although this has the same name as the IRS Fresh State Program, it is different. Utah's fresh start is similar to a voluntary disclosure program, while the IRS's program is a collection of updates made to tax collection processes in 2011.
To qualify for a Fresh Start in Utah, you must come forward voluntarily. You don't qualify if the Tax Commission has sent you three or more bills, placed a lien against you, garnished your wages, seized your assets, or taken other collection actions against you. This program is designed for people with unfiled returns.
To participate, you must file the returns, pay all of the taxes due, and request a Fresh Start. If you're approved, the Tax Commission will waive the penalties.
Enforcement Actions for Unpaid Utah Taxes
If you don't file your taxes, the Tax Commission can file a return on your behalf to assess taxes against you. If you have unpaid taxes from a tax assessment, an audit, or a return that you filed, the state can use a range of tactics to collect the unpaid taxes. Here's what can happen if you don't pay taxes in Utah.
Utah Tax Liens
The Tax Commission can issue a state tax lien against you if you don't pay your tax bill. The lien becomes a public record and attaches to all your assets. This can make it hard to sell or borrow against your assets. It also opens the door for Utah to seize your assets.
You may be able to avoid a tax lien by setting up a payment plan. In some cases, the state will issue a lien to protect its interests, even if you have a payment plan in place. However, the state won't act on the lien (seize your assets) as long as you make your payments as agreed upon.
To get a lien withdrawn, you need to pay your tax debt plus interest and penalties in full. Or you need to prove that the lien was issued in error.
Tax Levies in Utah
The Utah State Tax Commission will levy your assets if you don't pay your taxes. Tax levies can include garnishing your wages, seizing your assets, or taking the funds from your bank account. If the state levies your assets, it may add additional fees to your bill to cover collection costs.
Utah participates in the Treasury Offset Program (TOP). This means that if you don't pay your state tax bill, the Tax Commission will send a notice to the Treasury. Then, the IRS will send any federal tax refunds to Utah to cover your state tax bill. This also works in reverse. If you owe federal taxes, the Utah State Tax Commission will send your state tax refunds to the IRS.
Tax Penalties in Utah
If you file or pay your state taxes late, you will incur penalties on your account as follows:
- Filing one to five days late: 2% of the unpaid tax, with a minimum penalty of $20.
- Six to 15 days late: 5% of the unpaid tax, with a minimum penalty of $20.
- 16 or more days late: 10% of the unpaid tax, with a minimum fee of $20.
If you file but don't pay the tax, you will face late payment penalties at the same rates quoted above. If you pay more than 90 days after the due date, your late payment penalties will be as follows:
- 91 to 95 days late: 2% of the unpaid tax, with a minimum of $20.
- 96 to 105 days late: 5% of the unpaid tax, with a minimum of $20.
- 106 days or more: 10% of the unpaid tax, with a minimum fee of $20.
If you don't file and don't pay, the penalties don't stack. Instead, you incur a penalty of 10% of the unpaid tax, with a minimum penalty of $20.
Utah also assesses interest on unpaid state taxes. The interest rate adjusts annually, and as of 2023, it's 5%. To calculate the interest on your Utah tax bill, multiply the unpaid tax by the interest rate times the number of days you're late divided by 365.
If your account is audited and you incur a tax liability, you must pay in full within 30 days, or you will incur the following penalties:
- 31 to 35 days late: 2% of the unpaid tax, with a minimum of $20.
- 36 to 45 days late: 5% of the unpaid tax, with a minimum of $20.
- 46 or more days late: 10% of the unpaid tax with a minimum of $20.
Businesses will incur additional penalties if they don't pay quarterly corporate payments, insurance tax payments, or withholding tax. You can also incur penalties for not issuing the right tax documents to your employees.
If you underpay a tax due to negligence, the penalty is 10% of the underpayment. It's 15% if you underpay due to intentional disregard of the law. The penalty is 50% of the tax for an attempt to evade taxes.
Consequences of Unfiled Tax Returns in Utah
The Utah State Tax Commission may generate a tax return on your behalf if you don't file. When this happens, the Commission uses the single filing status with only one personal exemption. It also doesn't give you any credit for the taxes withheld from your paycheck.
As a result, these returns often show a much higher tax liability than you owe. If the state has generated a return on your behalf, you will need to file a tax return for each year and request a review of your account.
If you owe taxes in Utah, you may receive several different notices. Here are some of the notices issued by the state:
- Notice of Failure to File — Sent to businesses who have not filed a tax return.
- Notice of Account Closure and License Invalidation — The Tax Commission sends this notice to businesses after sending four failure-to-file notices to quarterly/monthly filers and two notices to annual filers.
- Notice of Taxes Due — Sent when you have an outstanding tax debt. It says that the Commission may file a lien.
- Notice of Lien — Sent before the Commission files a tax lien against you.
- Notice of Lien and Intent to Offset —Sent to individuals when the Tax Commission plans to keep their tax refunds to cover tax debts.
- Statement of Delinquent Taxes — Annual reminder to taxpayers and businesses with amounts due.
- Notice to Credit Bureaus — The Utah Tax Commission sends this notice when it withdraws liens against you. If the lien appears on your credit report, you should send the credit bureaus a copy of this statement so that they will remove the record from your report.
Statute of Limitations
Generally, Utah has three years from the due date of a return to assess a tax against you. However, if you don't file a return, there is no statute of limitations. The state can come after you for an unlimited amount of time.
Get Help With Utah Back Taxes
If you have unfiled returns, back taxes, tax disputes, or other issues with the Utah State Tax Commission, you should get help as soon as possible. The sooner you reach out for help, the easier it will be to resolve your tax issue.
Using TaxCure, you can search for a local tax professional based in Utah. Then, you can narrow down your search to find a local tax pro that is experienced with your specific issue.