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Common Causes of Tax Debt

February 20, 2015  |   Tax Tips   |   Tags: , ,  

Taxpayers do not always wind up with a tax debt because they do not pay their taxes on time. In certain instances, a tax debt comes as a surprise. To better understand what to expect, consider these common causes of tax debt:

irs tax debt

Non-payment of Taxes

A common cause of tax debt is not paying what is owed before the filing deadline. If a taxpayer does not pay their entire tax bill during the filing period, the IRS will consider the unpaid amount as a tax debt. Even if a taxpayer does not owe, but is required to file, the IRS can charge a failure-to-file penalty.

Inability to Pay Taxes

Taxpayers are sometimes financially unable to pay their tax bill. In such a situation, they may avoid the IRS and postpone resolution of their tax debt. That only drives up what is owed because of penalties and interest.

Even when taxpayers cannot pay their entire tax debt, they should pay as much as they can up front to avoid paying more in penalties and interest. At the very least, an appropriate payment plan should be chosen to resolve back taxes.

Changes in Tax Return

When the IRS spots errors on a tax return, they can make corrections and adjust what the taxpayer owes. In such a situation, the IRS sends a notice. Many times, a change in a return leads to owing more in taxes. Non-payment of the additional taxes can lead to tax debt.


Bad financial advice or misinformation often leads to errors on tax returns, which can result in a tax debt. Taxpayers that cannot hire a return preparer or purchase tax preparation software can use the free service provided by the IRS. The IRS offers Volunteer Income Tax Assistance (VITA) centers and Tax Counseling for the Elderly (TCE) centers throughout the country.

Erroneous Tax Beliefs

Some taxpayers get influenced by certain groups that advocate no taxes or argue that paying taxes is not legal. Some common erroneous tax beliefs are:

  • The filing of a tax return is voluntary
  • Paying taxes is voluntary
  • The IRS prepares tax returns for those that do not file
  • Compliance with the orders issued by the IRS is voluntary
  • Tips, wages and other compensation is not income
  • Only income from overseas is taxable
  • Federal reserve notes are not income
  • The IRS is not an agency of the U.S.

If a taxpayer decides to challenge the IRS, they should consult with a reputable tax professional, as the IRS may penalize those who make frivolous arguments to avoid paying taxes.