Resolving D.C. Tax Cases
Office of Tax and Revenue (OTR) Collections Division overseas delinquent taxpayer accounts. If full payment is not received within 15 days on an initial balance due notice, OTR send a notice of enforcement by certified mail to your last known address. It is important to read all Correspondence from OTR as these Notices contain important dates and information that may affect your rights. If you do not respond to letters or notices and your account continues to be delinquent, it is then assigned to a Revenue Officer for collection. Occasionally, OTR may outsource enforcement to third party Collection Agencies, the most common being MuniServices.
D.C. Non-Filer Notices
The District has been aggressively auditing individual taxpayers with an Information Request for taxpayers who filed a federal tax return with a District address and no corresponding D40 Resident Tax Return. As there is no Statute of Limitations for unfiled tax returns, these audits have been known to go back for 10 years or more. If you have received a D.C. non-filer inquiry, often the balance due can be reduced by providing a copy of your filed state tax return and proof of residency (lease agreement or utility bill). You may need to file a District resident or part-year resident return to close your case. In other cases, you may need to seek a refund of tax withheld in error.
Taxes on wages are owed to the District based on residency and not work location. So, for Residents who live in DC and work in VA or MD, make sure you adjust your withholding to your state of residency, particularly if you have moved. Refunds can be claimed going back only for 3 years for incorrect withholding, but what is a taxpayer to do for older years?
In addition to individual tax returns, OTR routinely audits business tax returns to ensure that taxpayers comply with local statutes, particularly pertaining to sales, franchise and employment taxes. Audits are done by mail or through personal interviews with auditors, and you have the right to know which records you will need to support your position, prior to any audit meeting.
Upon conclusion of the Audit, you will receive written notice detailing any adjustments made to your tax return and any balance due in the form of a Notice of Proposed Audit Changes. The notice will specify you have 30 days to request an Informal Conference if disagree with OTR’s determination. If a Resolution is not reached at the settlement conference, a Notice of Proposed Assessment will be issued. The taxpayer then has the option of appealing the decision to the Office of Administrative Hearings (OAH) within 30 days, by filing a petition https://oah.dc.gov/node/164412 or the D.C. Superior Court (where advance payment of the tax assessment is required).
OTR’s Criminal Investigation Division (CID) investigates alleged tax fraud and maintains a referral program to encourage individuals to report information regarding potential fraud. Examples of tax fraud and abuse include failing to file your tax return, filing false tax returns, unreported income and return preparer schemes. In accordance with confidentiality laws, individuals who report tax fraud will not receive a status updates, however, the District is authorized by statute to pay rewards to informants.
If a taxpayer cannot pay their balance in full, OTR will allow them to pay in installments, generally not to exceed 24 months (MuniServices may accept longer). Interest continues to accrue and taxpayers are expected to pay their current taxes concurrently. If installment payments are not made timely, OTR may collect the taxes due by seizing wages or bank accounts. Once an installment agreement is reached, a lien determination will be made. Any state and federal refunds are subject to interception and will be applied to outstanding tax liabilities. In addition to penalty and interest, If you do not establish an installment agreement timely, the District may impose collection fees of 10%.
OTR may file a tax lien covering all tax debt, recorded at the District’s Recorder of Deeds office, where it becomes public record and appears on your credit report. This enables the District to seize property (bank accounts, wages, and personal property) to pay the debt. A tax lien can appear on a taxpayer’s credit history for 10 years, even after the debt is marked paid in full.
OTR may waive or cancel delinquent return penalties if you show reasonable cause, defined as your exercising ordinary business care and prudence in the execution of your tax obligations, but some uncontrollable outside event (such as incapacitation or loss of records) prevented you from complying. The request should be submitted in writing and include any supporting documentation and explain the circumstances that caused your return to be late. Generally, OTR does not abate interest charges unless there is a considerable delay on the part of the District.
You may appeal any penalty waiver determination via a Request for Consideration within 30 days of the denial of your penalty waiver request. Taxpayer mush show reasonable cause and acting in good faith. Taxpayer should outline in a detailed letter the exercise of ordinary business care and prudence in determining tax obligations, but for an uncontrollable reason was unable to comply within the prescribed time. An informal conference should be requested and all proof to support your case should be made readily available.
OTR has a Voluntary Disclosure Program encouraging businesses and individuals that are not in compliance with District tax laws to voluntarily come forward to bring their accounts into compliance. You are eligible for the program only if you have not received a Notice in the past regarding your particular tax issue. If you are accepted in the program, OTR will waive civil penalties if the tax and interest is paid in full, with a lookback period of generally 3 years.
The Voluntary Disclosure Program is a legal agreement between the DC Office Of Tax And Revenue and businesses and individuals who are not in compliance with their District tax laws. These individuals and companies will be able to satisfy any and all of their outstanding tax liabilities through this program while completing all necessary registrations within the state. After completion of the program, they will then have ongoing monthly, quarterly, or annual reporting requirements depending on the volume of activity within DC.
There are several major benefits of taking advantage of the Voluntary Disclosure Program, such as reduction or elimination of penalties. Also, cancellation of any interest in some cases that is due on unremitted or uncollected taxes—especially compared to the increased penalties that would be assessed and applied if they are identified as not being in compliance with their taxes to the DC Office Of Tax And Revenue. Also beneficial for many is that the Voluntary Disclosure Program limits the lookback period to only a specific number of years. That being said, the lookback period for anyone who has been collecting taxes but not remitting them will include all periods they collected taxes.
If you’re thinking about applying for the Voluntary Disclosure Program, eliminations in penalties and or reductions in interest can save you from paying a large amount in back taxes. Just remember that if an individual taxpayer or other legal entity has already been contacted by the DC Office Of Tax And Revenue or any of its representatives, they will become ineligible for the Voluntary Disclosure Program.