How Can I Deal With Back Taxes From Previous Years?

A Complete Guide to Resolving Unfiled Returns and Unpaid Tax Debt

By Mike Habib, EA | Licensed Enrolled Agent | Los Angeles, California

Finding yourself with back taxes from previous years can feel overwhelming and even frightening. Whether you have unfiled tax returns, an unpaid balance that has grown with penalties and interest, or both, the situation rarely improves on its own. The good news is that the IRS and state tax agencies have established pathways for taxpayers to resolve their back tax issues, and taking action sooner rather than later almost always leads to better outcomes.

This guide answers the most common questions about dealing with back taxes, explains your options for getting back into compliance, and describes how working with an experienced tax professional can help you navigate this challenging situation with confidence.

What Exactly Are Back Taxes?

Back taxes refer to any tax liability from a previous year that remains unpaid or any tax return from a previous year that was never filed. The term encompasses two related but distinct problems that often occur together. Some taxpayers owe back taxes because they filed their returns but could not pay the full amount due. Others have unfiled returns from years past, which means the IRS may not even know exactly how much they owe until those returns are prepared and submitted.

When you fail to file a required tax return, the IRS may eventually file a substitute return on your behalf using information from W-2s, 1099s, and other documents they receive. These substitute returns typically do not include deductions, credits, or filing status elections that would reduce your tax liability, meaning the assessed balance is often higher than what you would actually owe if you filed your own return. When you fail to pay taxes you owe, penalties and interest begin accruing immediately, causing the balance to grow over time.

Back taxes can stem from federal income taxes owed to the IRS, state income taxes owed to agencies like California’s Franchise Tax Board (FTB), payroll taxes owed to both federal and state authorities, or sales and use taxes owed to agencies like California’s Department of Tax and Fee Administration (CDTFA). Each type of tax debt has its own rules, penalties, and resolution options.

What Happens If I Simply Ignore My Back Taxes?

Ignoring back taxes is never advisable, as the consequences escalate over time and the problem only grows worse. In the early stages, you will receive notices from the IRS or state tax agency informing you of the balance due and requesting payment. These notices become progressively more serious if ignored, eventually culminating in enforced collection actions.

The IRS has powerful collection tools at its disposal. They can file a federal tax lien against your property, which becomes a matter of public record and damages your credit score. They can levy your bank accounts, seizing funds directly without further notice once the proper warnings have been issued. They can garnish your wages, requiring your employer to send a portion of your paycheck directly to the IRS. They can seize and sell your property, including vehicles, real estate, and other assets. In extreme cases involving willful evasion, criminal prosecution is possible, though this is relatively rare for ordinary taxpayers who simply fell behind.

State tax agencies like the FTB, EDD, and CDTFA have similar enforcement powers within their jurisdictions. California can suspend your driver’s license, professional licenses, and vehicle registration for unpaid taxes. They can also intercept state tax refunds and lottery winnings. The financial and practical consequences of unresolved back taxes affect nearly every aspect of your life, from your ability to obtain credit to your peace of mind.

How Far Back Can the IRS Go to Collect Unpaid Taxes?

The IRS generally has ten years from the date a tax is assessed to collect the amount owed. This is known as the Collection Statute Expiration Date, or CSED. Once the CSED passes, the IRS can no longer legally collect the debt, and the balance is written off. However, several important caveats apply to this general rule.

First, the ten-year clock does not start until the tax is assessed, which typically occurs when you file your return or when the IRS files a substitute return on your behalf. If you have unfiled returns from many years ago, the statute of limitations on collection may not have even begun running for those years. Second, certain actions can pause or extend the collection statute, including filing for bankruptcy, submitting an Offer in Compromise, requesting innocent spouse relief, living outside the United States, or entering into certain installment agreements.

For audit purposes, the IRS generally has three years from the date you filed your return to assess additional taxes, though this extends to six years if you omitted more than 25% of your gross income. There is no time limit for assessing taxes on unfiled returns or in cases of fraud. California has similar statutes with some variations, so understanding both federal and state timelines is important for taxpayers in the Golden State.

Should I File My Unfiled Tax Returns Even If I Cannot Pay?

Absolutely yes. Filing your unfiled returns is one of the most important steps you can take, even if you cannot pay the balance due. The failure-to-file penalty is significantly higher than the failure-to-pay penalty, so filing without paying is always better than not filing at all. The failure-to-file penalty runs 5% of the unpaid tax per month, up to a maximum of 25%, while the failure-to-pay penalty is only 0.5% per month, up to 25%.

Filing your own returns also ensures that your tax liability is calculated correctly, with all the deductions, credits, and exemptions you are entitled to claim. If the IRS has already filed substitute returns for you, your actual liability may be significantly lower than what they have assessed. Filing accurate returns can reduce your balance and put you in a better position to negotiate a resolution.

Additionally, filing starts the clock on important statutes of limitations. The assessment statute begins when you file, and certain resolution options like Offers in Compromise require that all required returns be filed before you can apply. Getting into filing compliance is a prerequisite for moving forward with most tax resolution strategies.

What Are My Options for Paying Off Back Taxes?

The IRS offers several tax-debt relief options for taxpayers who owe back taxes but cannot pay the full amount immediately. The best option for your situation depends on how much you owe, your current financial circumstances, and your ability to pay over time.

If you owe less than $50,000 in combined taxes, penalties, and interest, you could qualify for an installment agreement. These payment agreements allow you to pay your balance over many months. For larger balances or longer payment terms, you may need to complete a Collection Information Financial Statement documenting your income, expenses, assets, and liabilities.

For taxpayers experiencing financial hardship, Currently Not Collectible (CNC) status may be available. When the IRS places your account in CNC status, they temporarily suspend collection activity because they recognize that any payment would create economic hardship. Interest and penalties continue to accrue, but you are protected from levies and other enforcement actions while the status remains in effect. The IRS will periodically review your financial situation to determine whether it has improved.

What Is an Offer in Compromise and Do I Qualify?

An Offer in Compromise (OIC) is an agreement between a taxpayer and the IRS that settles the taxpayer’s tax debt for less than the full amount owed. It is often referred to as settling with the IRS for pennies on the dollar, though the reality is more nuanced. The IRS will only accept an offer if it represents the maximum they can reasonably expect to collect from you.

To qualify for an OIC, you must be current on all filing requirements, meaning all required tax returns must be filed. You must have made all required estimated tax payments for the current year if you are self-employed. You cannot be in an open bankruptcy proceeding. Most importantly, you must demonstrate that you cannot pay your full tax liability through an installment agreement or through liquidation of your assets.

The IRS evaluates offers based on your reasonable collection potential, which considers your future income, equity in assets, and ability to pay. They use specific formulas to calculate this amount, and offers below that threshold are typically rejected. The OIC process is complex and document-intensive, with a low acceptance rate for offers submitted without professional assistance. Having an experienced tax professional prepare and negotiate your offer significantly improves your chances of success.

Can I Get Penalties and Interest Reduced or Removed?

Penalty abatement is possible in certain circumstances, and securing relief from penalties can significantly reduce your overall tax debt. The most common basis for penalty abatement is reasonable cause, which requires demonstrating that you exercised ordinary business care and prudence but were still unable to meet your tax obligations due to circumstances beyond your control.

Examples of reasonable cause include serious illness or death in the immediate family, natural disasters, inability to obtain records, reliance on incorrect advice from a tax professional, and other significant life disruptions. The IRS evaluates each request based on the specific facts and circumstances, and the burden is on the taxpayer to establish that reasonable cause exists.

First-time penalty abatement (FTA) is another option for taxpayers with a clean compliance history. If you have filed all required returns and have not had any penalties assessed in the three years prior to the tax year in question, you may qualify for FTA administrative relief. This removes the failure-to-file and failure-to-pay penalties for a single tax period without needing to establish reasonable cause.

Interest abatement is much more difficult to obtain, as interest is generally only removed when it is attributable to IRS errors or delays. However, reducing your principal balance through penalty abatement also reduces the amount of interest that accrues going forward, making penalty relief a valuable component of any back tax resolution strategy.

What Should I Do If I Receive an IRS Notice About Back Taxes?

Receiving a notice from the IRS can be alarming, but it is important to read it carefully and respond appropriately rather than panic or ignore it. IRS notices follow a progression, and understanding where you are in that progression helps you understand the urgency of your situation and the options available to you.

Early notices like CP14 and CP501 inform you of a balance due and request payment. These are relatively routine and indicate that you are in the early stages of the collection process. Subsequent notices like CP503 and CP504 escalate the urgency and warn of potential collection actions. A CP504 notice indicates that the IRS intends to levy your state tax refund and is one of the last notices before more serious enforcement begins.

Letter 1058 or LT11 is the final notice of intent to levy, informing you that the IRS will begin seizing assets if you do not take action within 30 days. This notice also advises you of your right to a Collection Due Process hearing, which is an important opportunity to challenge the proposed levy and explore alternatives. Missing this deadline can result in immediate enforcement without further warning.

Regardless of which notice you receive, the best response is to take action promptly. Contact the IRS or a qualified tax professional to discuss your options. Ignoring notices only allows the situation to escalate and limits your available options over time.

How Can a Tax Professional Help With My Back Tax Situation?

Navigating the back tax resolution process on your own is possible, but working with an experienced tax professional offers significant advantages. Tax professionals who specialize in IRS representation understand the rules, procedures, and negotiation strategies that can mean the difference between a manageable resolution and continued financial stress.

A qualified representative can communicate with the IRS on your behalf, relieving you of the stress of direct contact with the agency. They can analyze your financial situation and recommend the resolution option most likely to succeed in your circumstances. They can prepare and file unfiled returns accurately and efficiently, ensuring you receive all deductions and credits to which you are entitled. They can negotiate installment agreements, submit Offers in Compromise, request penalty abatement, and pursue Currently Not Collectible status when appropriate.

If your case escalates to audit, appeals, or collection enforcement, having professional representation is even more valuable. An experienced advocate knows how to present your case effectively, challenge incorrect assessments, and protect your rights throughout the process. The IRS is a sophisticated agency with significant resources, and having someone equally knowledgeable in your corner levels the playing field.

What Is the Difference Between a CPA, Tax Attorney, and Enrolled Agent?

Three types of professionals have unlimited practice rights before the IRS, meaning they can represent taxpayers in audits, collections, and appeals at all levels of the agency. Each brings different strengths to the table, and understanding the distinctions can help you choose the right professional for your situation.

Certified Public Accountants (CPAs) are licensed by state boards and have passed the rigorous CPA examination. While CPAs are qualified to prepare tax returns and represent clients before the IRS, their training and practice often emphasize financial accounting, auditing, and business advisory services. Not all CPAs specialize in tax resolution or IRS representation.

Tax attorneys are lawyers who specialize in tax law. They are particularly valuable when legal issues are involved, such as potential criminal liability, complex litigation, or matters requiring legal privilege. However, attorney fees are typically the highest of the three credential types.

Enrolled Agents (EAs) are federally licensed tax practitioners who have demonstrated their expertise by passing a comprehensive IRS examination covering all aspects of individual and business taxation, or by gaining experience as a former IRS employee. Enrolled Agents specialize exclusively in taxation and often focus their practices on tax preparation, planning, and representation. Because they concentrate solely on tax matters, EAs frequently have deep expertise in IRS procedures and resolution strategies at competitive rates compared to attorneys.

How Do I Deal With California State Back Taxes?

California taxpayers facing back taxes often owe money to state agencies in addition to the IRS. The Franchise Tax Board (FTB) handles personal income tax and business entity taxes, the Employment Development Department (EDD) handles payroll taxes, and the California Department of Tax and Fee Administration (CDTFA) handles sales and use taxes. Each agency has its own rules, penalties, and resolution procedures.

The FTB offers installment agreements similar to the IRS, though the terms and approval criteria differ. California also has an Offer in Compromise program that allows qualifying taxpayers to settle their state tax debt for less than the full amount owed. However, the FTB is generally considered more aggressive in its collection activities than the IRS, and California has some enforcement tools, like license suspensions, that the federal government does not use.

Coordinating resolution of both federal and state back taxes requires careful planning. In some cases, the terms of an IRS installment agreement affect what you can negotiate with California. A tax professional experienced with both federal and California tax resolution can help you develop a comprehensive strategy that addresses all your tax obligations efficiently.

What Steps Should I Take Today to Start Resolving My Back Taxes?

If you have back taxes from previous years, taking action now is the single most important step you can take. Procrastination only allows penalties and interest to continue accruing while limiting your options over time. Here is a practical roadmap for getting started.

First, gather information about your tax situation. Request a transcript of your IRS account using Form 4506-T or through the IRS online portal. This will show you which years have unfiled returns, what balances are assessed, and where you stand in the collection process. You can request similar information from California agencies for state taxes.

Second, compile the documents needed to prepare any unfiled returns. This includes W-2s, 1099s, records of deductible expenses, and any other relevant financial information for each year in question. The IRS can provide wage and income transcripts if you no longer have copies of these documents.

Third, consult with a qualified tax professional to assess your situation and discuss your options. An experienced professional can help you understand the full scope of your liability, evaluate which resolution strategies are realistic, and develop a plan to get you back into compliance. Many tax professionals offer initial consultations to discuss your situation and explain how they can help.

Why Work With Mike Habib, EA for Back Tax Resolution?

Mike Habib is a licensed Enrolled Agent based in Whittier, Los Angeles County, California, with extensive experience helping taxpayers resolve back tax issues with both the IRS and California state agencies. As an Enrolled Agent, Mike holds unlimited practice rights before the Internal Revenue Service, meaning he can represent you in audits, collections, appeals, and any other IRS matter with the same authority as attorneys and CPAs.

With over 20 years of financial experience including executive roles as Controller at Xerox Corporation and Director of Finance at AEG, Mike brings a sophisticated understanding of both individual and business tax matters. His practice focuses specifically on tax representation and tax problem resolution, including IRS and California state agency audit representation, negotiating installment agreements and Offers in Compromise, securing penalty abatement, and achieving Currently Not Collectible status for qualifying clients.

Mike’s approach emphasizes direct client communication and personalized service. Unlike large accounting firms that charge premium rates and often hand off your file to junior staff, working with Mike means direct access to an experienced professional who knows your case inside and out. His competitive rates of $400-500 per hour compare favorably to the $850-1,500 hourly rates charged by major firms, and many engagements are structured on a value flat fee basis for cost certainty.

Although based in the Los Angeles area, Mike serves taxpayers nationwide and assists Americans living overseas. Modern technology allows him to work effectively with clients regardless of location, providing the same attentive service whether you are across town or across the world.

Back Tax Resolution Services Offered

Mike Habib, EA provides comprehensive back tax resolution services designed to help you achieve the best possible outcome in your specific situation. These services include unfiled tax return preparation for all prior years, ensuring accurate reporting and maximum deductions. For taxpayers with assessed balances, Mike negotiates installment agreements, prepares and submits Offers in Compromise, requests penalty abatement based on reasonable cause or first-time abatement provisions, and pursues Currently Not Collectible status when financial hardship exists.

If you are facing collection enforcement such as liens, levies, or wage garnishments, Mike can intervene quickly to protect your assets and income while working toward a resolution. For California state taxes, he provides representation before the FTB, EDD, and CDTFA, coordinating your state and federal resolution strategies for optimal results.

Beyond resolving immediate back tax issues, Mike helps clients implement systems to stay compliant going forward, including quarterly estimated tax planning and ongoing tax preparation services. The goal is not just to solve today’s problem but to ensure you never find yourself in this situation again.

Taking Control of Your Tax Situation

Dealing with back taxes from previous years is stressful, but it is a solvable problem. The IRS and state tax agencies have established procedures for taxpayers who want to get back into compliance, and a variety of resolution options exist for those who cannot pay in full immediately. The key is to take action rather than hoping the problem will disappear on its own.

Every day that passes without addressing your back taxes allows penalties and interest to accumulate and may move you further along the enforcement timeline. Conversely, taking proactive steps demonstrates good faith to the IRS and opens doors to resolution options that may not be available if you wait until the agency forces the issue.

Whether you have one unfiled year or a decade of tax problems, whether you owe a few thousand dollars or hundreds of thousands, the path forward begins with understanding your situation and exploring your options. A qualified tax professional can help you see the full picture, develop a realistic plan, and execute that plan efficiently while protecting your rights throughout the process.

If you are ready to take control of your tax situation and put your back tax worries behind you, Mike Habib, EA welcomes the opportunity to discuss your circumstances and explain how professional representation can help you achieve a fresh start.

Contact Mike Habib, EA

Tel: 1-562-204-6700 – Toll Free: 1-877-788-2937 [1877-78-TAXES]

Licensed Enrolled Agent | Whittier, Los Angeles County, California

Serving Taxpayers Nationwide and Americans Living Overseas

Tax Representation | Back Tax Resolution | Audit Representation | Installment Agreements | Offers in Compromise

Disclaimer: This article is provided for general informational purposes only and does not constitute tax or legal advice. Tax laws are complex and change frequently. The information presented may not apply to your specific situation. Every tax case is different, and outcomes depend on individual facts and circumstances. Please consult with a qualified tax professional for advice tailored to your particular situation.