Washington D.C. Tax Problems and Solutions

Office of Tax and Revenue: Consequences and Resolution Options

 

If you live, work, or operate a business in Washington, D.C., you'll need to deal with taxes in the District. The taxes you must file and pay vary depending on the situation, but the D.C. Office of Tax and Revenue (OTR) collects individual income tax, sales tax, franchise tax, and a variety of other business taxes. 

To help you understand the requirements and what can happen if you don't meet your obligations, this post outlines common D.C. tax problems. Then, it outlines what happens if you don't pay your taxes and your options for getting back into compliance. To get help now, use TaxCure to find an experienced tax professional today.

Key takeaways

• The OTR collects individual and business taxes in Washington, D.C..
• Individuals may need ot pay income tax, while businesses must deal with sales tax, franchise tax, withholding, excise taxes, and other taxes. 
• Failure to pay can lead to tax liens, wage garnishments, bank levies, and asset seizures. 
• The OTR offers payment plans, offers in compromise, and other options to help taxpayers get back on track. 
• An experienced tax professional can help you find the best option for your situation. 

Washington, D.C. tax problems

Businesses and individuals in Washington, D.C. may face a myriad of tax problems, including the following:

• Unpaid taxes – may occur if you file a return and don't pay in full, the OTR adjusts a return, or an audit leads to a tax liability. 
• Unfiled returns – failure to file returns can lead to penalties, interest, and scrutiny from the OTR. You may also risk losing sales tax licenses and business permits. 
• Audits – the OTR can audit a return filed with the agency. If you're selected for an audit, you'll need to back up the information on your return. 
• Residency audits – if you don't file an income tax return and the OTR believes you're a resident, they may do a residency audit, where you'll be required to show that you don't live in D.C. and aren't subject to its income tax requirements. 
• Confusion about business tax obligations – businesses in D.C. may need to collect and file sales tax returns, franchise tax returns, and deal with payroll taxes, including local withholding tax. Not meeting these obligations can put you and your business at risk. 

If you're facing any of these tax problems, you need to reach out to a tax resolution specialist who has experience with these specific types of problems in this area. Don't look to the big firms for help. Instead, use TaxCure to find local, reliable assistance. 

Consequences of unpaid Washington D.C. taxes

If you don't pay your taxes, the OTR may file a tax lien against you and use the following processes to collect the tax involuntarily. To avoid these consequences, contact the OTR proactively to set up payments for your unpaid tax. 

Tax liens

If you don't pay within 10 days of receiving a Notice of Tax Due and Demand for Payment, the OTR may file a tax lien with the District of Columbia Recorder of Deeds. The tax lien is a public record that attaches to all of your assets. It makes it known that the District has a legal stake in your assets. 

Here's how a tax lien affects you if you attempt to buy, sell, transfer, or borrow against your assets:

• Buy – the lien will attach to any new assets that you buy, inherit, or otherwise receive. Typically, you will not be able to take out a loan to buy assets, as lenders can't effectively use the asset as collateral if there's already a tax lien in place. 
• Transfer – the lien will stay attached to any liens that you attempt to transfer. For instance, say you gift an RV to someone after a tax lien has been filed against you. When they go to put the RV in their name, they will learn that there's a lien attached to the title. That puts the asset at risk of seizure and makes it impossible for them to sell or transfer the RV in the future. In some cases, they may not even be able to transfer the title, and if you're not careful, the OTR may see asset transfers as tax evasion.
• Sell – if you sell an asset while a lien is in place, the proceeds of the sale, up to the face value of the lien, must go to the lienholder. For instance, if you sell your home for $300,000 and there's a tax lien for $100,000, those funds will go to the OTR. If the funds aren't enough to cover the lien, you'll need to get the OTR to discharge the lien from that piece of property so that you can complete the sale.
• Borrow – to borrow against your assets, you typically need to get the OTR to subordinate its lien to the lender. That means that the OTR agrees to take property behind the lender, and if you default, the lender has first dibs on the loan's collateral. Generally, the OTR will only agree to subordination if you use the loan proceeds to pay off your tax debt.

Asset levy

The lien lays the legal groundwork to allow the OTR to seize your assets. The agency can seize:

• Wages
• Bank accounts
• Investment accounts
• Savings accounts
• Retirement accounts
• Certain pensions
• Funds due to you from other parties – for example, rent or payment processing transfers from your business
• Personal property
• Real estate
• Business assets such as inventory, equipment, accounts, cash, etc.

There are a few items that are exempt from seizure – but not many. For instance, the OTR must leave you enough money to live on if they garnish your wages. They also can't take certain types of personal property, certain tools of the trade, and most types of public assistance and workers' comp.

The OTR will go after business assets for unpaid business taxes and personal assets for unpaid personal taxes, but that can vary based on the situation. If you owe personal taxes, the OTR may be able to go after business assets, as you own your business. If you owe business taxes, the agency can only seize your personal assets if the business is a sole proprietorship or if the OTR has assessed personal liability for business trust fund taxes, such as sales tax or withholding taxes.

Referral to a collection agency

The OTR may refer your account to a private collection agency if you don't pay or file taxes. As of 2025, the District contracts with these two agencies:

Harris & Harris
111 West Jackson Boulevard
Suite 650
Chicago, IL 60604-3589

Telephone Number: (833) 480-8976

Mailing address:
P.O. Box 5462. 
Chicago, IL 60680-5462

Pioneer Credit Recovery
P.O. Box 345
Arcade NY, 14009

Telephone Number 1 (888) 287-0632

If a collection agency contacts you and you're not sure whether or not they're legit, reach out to the OTR to determine if your account has been referred, and if so, to which agency. Or contact a tax professional for guidance.

Refund and vendor payment offsets

The OTR will seize your refunds if you owe back taxes. The OTR also participates in the Treasury Offset Program (TOP). That allows the OTR to receive IRS refunds if you owe money to the OTR, and it also works in reverse – if you owe money to the IRS, they will direct the OTR to send your refunds to the IRS. 

If your business does work for the District, the OTR also has the right to intercept your vendor payments for unpaid taxes. 

Loss of sales tax certificates

The OTR can rescind your sales tax license for unpaid taxes. They can also take away any other licenses issued by the District. D.C. Code § 47-2862 outlines the Clean Hands Rule, which states that the District can revoke or deny permits if you owe more than $100 in taxes, fines, or penalties, or if you have unfiled returns.

Personal liability for business taxes

If a business has unpaid trust fund taxes, the Division can assess those taxes against responsible individuals. Trust fund taxes are collected from other taxpayers and remitted by the business to the OTR, and they include sales tax and withholding tax. 

The Division may assess those taxes against owners and shareholders, but also other decision makers in the business, such as accountants and bookkeepers. Once personal liability has been determined, the OTR can use all of the above collection methods to seize your personal assets for unpaid taxes.

OTR tax debt resolution options

The OTR has a few different options for individuals and businesses that have fallen behind on their tax payment or filing obligations. A tax professional can help you find the best option for your unique situation. Here are the main options. 

OTR monthly payments

The OTR lets most individuals and businesses set up payment plans on up to $100,000 in tax debt over up to 48 months. If you owe more or need longer to pay, you'll need to submit a financial disclosure. 

Offer in compromise

Qualifying taxpayers may be able to settle debts for less than owed through the OTR's offer in compromise program. To qualify, you must prove that 1) you can't afford to pay in full, 2) you don't really owe the full tax liability, or 3) it would be inequitable to make you pay in full. The application process is very detailed, and you must meet strict requirements. 

Penalty abatement

Generally, the OTR is willing to abate penalties if you prove that you had reasonable cause – that's when events outside of your control prevented you from paying or filing on time. You can use penalty abatement to reduce your total amount owed in addition to applying for a payment plan or another relief option. 

FAQs about OTR tax problems

Does the OTR offer innocent spouse relief?

No, the OTR does not offer innocent spouse relief. However, if you owe IRS taxes that are due to your spouse underreporting income on a joint return without your knowledge, you may qualify for innocent spouse relief on the federal level. 

What is injured spouse relief?

Injured spouse relief is when you ask the OTR not to offset a refund from a joint return due to your spouse's debt. To apply, use Form DC-8379. You must file a joint return with your spouse, you must have income on the return, you must have paid OTR withholding tax or estimated taxes, and your spouse must have a debt that you're not responsible for. 

For example, if your spouse has unpaid child support but you're not legally responsible for it, you can file Form DC-8379 to ask the OTR to let you keep your portion of the refund. Then, the OTR will only seize your spouse's portion of the refund to cover their debt. 

Does the OTR offer a voluntary disclosure program?

Yes, if you're behind on your filing requirements, you may want to look into a voluntary disclosure. This program lets you come clean with the OTR – in exchange for coming forward voluntarily (before they reach out to you), the OTR will minimize penalties and give you a reduced lookback period. 

Find help using TaxCure today.

You don't have to continue to worry about your tax debts or unfiled returns. With the right help, you can move forward and put this stress behind you. Don't wait – use TaxCure to find a tax professional today. 

This is the only online marketplace of tax resolution professionals. You can do a search based on the agency you're having problems with (for example, the IRS, the OTR, other state agencies, or multiple agencies). Then, you can narrow down the search results based on your specific problem (for example, an audit or unfiled returns) or the solution you want (for example, installment agreement or offer in compromise). 

Finally, you can review the options, read reviews, and reach out to the tax pros of your choice.