Tax Problems and Solutions in West Virginia

Consequences of Unpaid Taxes

If you don’t pay your state taxes, the West Virginia Tax Division will send you several notices and add penalties and interest to your account. If you don’t reach out and set up a payment plan or make other arrangements, the state can start involuntary collection actions including the following:

• State tax liens – Liens are attached to all of your real and personal property for up to 10 years from the tax assessment date or return filing due date.
• Bank account levies – Once a lien has been issued, the state can contact your bank and tell them to send all of the funds in your account (up to the amount of your tax liability plus penalties, interest, and collection fees) to the Tax Division.
• Wage garnishment – The Tax Division can contact your employer and have them withhold a portion of your paycheck to be sent to the state to cover your tax liability.
• Seizing and selling property – The state can enforce a tax lien through foreclosure which involves seizing your assets, selling them, and giving the proceeds to the Tax Division and/or other creditors with liens against your property.

The state will impose a penalty of 5% of the unpaid tax every month you file a return late, and that penalty can get up to 25% of the liability. There is a 0.5% monthly penalty for paying late, which also maxes out at 25%. The penalty for filing a false or fraudulent return is 50% of the unreported tax. The state also applies interest to unpaid taxes at a variable rate. As of 2024, the interest rate is 13% annually with daily compounding.

Options for Taxpayers Who Cannot Afford to Pay

Fortunately, there are options for taxpayers who cannot afford to pay their West Virginia tax liabilities. You may need to explore these options if you file and can’t pay the balance due on the return or if an audit leads to an unexpected tax liability. 

Payment Plans

If you cannot afford to pay the tax due on your individual state income tax return, the West Virginia Tax Division may allow you to make monthly payments. You can apply for payments online at My Taxes. If you meet the following criteria, the state will not file a tax lien against you:

• You can pay the balance within six months, or within 12 months and you set up automatic withdrawals from your bank account.
• You have filed all required state tax returns.
• You have not defaulted on a previous payment plan.

If you need more than 12 months to pay or if you cannot set up direct debits for payments, you may still be able to get a payment plan, but the Tax Division will file a state tax lien. If you default on the payment plan, the state can start involuntary collections against you as outlined above.

Offer in Compromise

Like the IRS, the West Virginia Tax Division may let you settle your taxes for less than owed in these situations:

• Doubt as to collectibility – you cannot afford to pay the tax bill.
• Doubt as to liability – you do not really owe the tax bill.

To apply for doubt as to collectibility, you must fill out forms showing the state details about your income and assets. Complete Form 433-A for individuals and Form 433-B for businesses. Be sure that you use West Virginia’s version of these forms. The IRS uses the same names for its offer in compromise forms. 

If the state sees that you cannot make the payment out of your income or by liquidating your assets, they may accept a doubt of collectability offer. For a doubt as to liability claim, you must explain why you are unlikely to owe the tax debt and make an offer for the legitimate part of the assessment. 

To qualify for an offer in compromise, you must have filed all tax returns. You also must stay compliant for the next five years or the state can rescind the offer and demand payment in full. 

Currently Not Collectible

The Tax Division may consider marking your account as currently uncollectible if you establish that you cannot afford to pay the bill. Talk with a tax attorney or contact the Division directly to apply. Depending on the situation, you may need to complete a financial disclosure or prove hardship in another way such as having disability or Social Security as your only form of income.

Solutions for Other West Virginia Tax Problems

Unpaid taxes are not the only issue you may face if you’re dealing with the Tax Division. In the following sections, we look at how to release state tax liens, how to prevent the state from seizing your tax refund for your spouse’s debts, and how to make a voluntary disclosure if you have unfiled state tax returns.

Release of State Tax Lien

You can ask the state to release a tax lien if it is causing financial hardship or if releasing it would help you pay the tax debt. For example, say that you want to sell property to pay off your tax bill but the lien prevents you from doing so. In that case, you should complete the form to request a lien release. Note the property’s fair market value, how you plan to use the sale proceeds, and the amount you are paying. 

Injured Spouse Claims in West Virginia

If you owe certain debts such as state tax debts or unpaid child support, the state can seize your tax refund. If you’re filing with your spouse, the state will seize your tax refund to cover their debt unless you file a request for WV Injured Spouse Relief.

The request has you outline your and your spouse’s income and deductions. Then, the state uses this information to determine which part of the tax refund is due to you versus your spouse.

Voluntary Disclosure for Unfiled Returns

If you have unfiled returns in West Virginia, the Voluntary Disclosure Program allows you to get back into compliance while also minimizing penalties or other consequences. To qualify, you must not be registered to pay the tax, and you must come to the agency first. If you are under audit or have been contacted by the Tax Division, you do not qualify. 

You can send your initial request anonymously. If the state accepts your disclosure, you will only have to file up to the last three years of returns, and you will not face audits or assessments for previous tax periods. Once you’re accepted, however, you must pay all tax and interest within 30 days. You can supply spreadsheets for sales tax returns, but for all other tax types, you must complete the relevant returns.

Taxpayers often use the VDP for unfiled sales tax returns. In particular, this happens to remote sellers who do not realize they have a nexus in the state. If you sell taxable goods or services in West Virginia, you must register for a sales tax license. Then, you must collect sales tax and remit it to the state along with a sales tax return. 

As of 2019, remote sellers and marketplace facilitators must register for a WV sales tax account if they have over $100,000 in sales to WV residents or over 200 transactions. If you were supposed to register and haven’t, contact a tax attorney to talk about the benefits of voluntary disclosures. 

West Virginia Tax Division Audits

The Tax Division regularly audits tax returns for accuracy. If you are selected, the Division will contact you through the mail and ask you to complete an audit questionnaire. The form asks questions about your EIN, business address, accountant or bookkeeper, and the site of your records. It also requests a description of your business activities and info on your bookkeeping software.

Once the state receives your info, an auditor will contact you to schedule the audit and let you know what they want to see. Generally, there is about a month between when you return the form and schedule the audit. Audits may take place at a West Virginia Tax Division office, at your business, or at your accountant/bookkeeper’s office.

The audit will cover a specific period and type of tax but may cover multiple periods and multiple types of taxes. If the auditor decides to do a sample audit, you will provide records over a relatively short period of time, and the auditor will project the results over the full audit period. You may need to provide your federal and state tax returns, financial statements, customer and vendor lists, exemption certificates, and any other info deemed important by the auditor. The state prefers electronic records but will accept hard copies. You are required by state law to keep records of your financial transactions, but if you do not have the requested info, talk with the auditor about possible alternatives. 

If the auditor agrees with the info you provided, they will accept your return as filed. If not, they will make changes to your return, and typically, the changes lead to a tax assessment. 

Appealing Audit Assessments

If you disagree with the audit results, you have 60 days to appeal. Complete the Petition for Appeal form and make sure that it’s postmarked by the deadline or you will lose your opportunity to appeal. During the appeals process, you get to present new information and explain why you disagree with the audit results. 

In most cases, if you disagree with the results of the appeal, you can make an additional appeal to the Circuit Court. However, if you owe less than $10,000, you can opt for a small claims appeal. That provides you with an informal appeals process, but you don’t have the right for a second appeal to the Circuit Court.

Get Help With West Virginia Tax Problems

At the W Tax Group, our attorneys have represented many clients in front of the WV Tax Division and the IRS as well as many other states. If you’re facing an audit, dealing with unfiled returns, or looking for solutions for state back taxes, we can help. 

When you contact us, we’ll start with a free consultation where we learn about your tax problems, and you decide if we’re the right fit. Then, if you decide to move forward, we represent you in front of the state or IRS and we help you get the best resolution possible for your unique situation. Don’t wait—contact us today.

Lead Tax Attorney at The W Tax Group

Stephen A Weisberg