Tennessee Tax Problems and Solutions

The Tennessee Department of Revenue is responsible for collecting a wide variety of taxes and enforcing tax laws, both for individuals and businesses. In addition to facing federal tax problems with the IRS, Tennessee taxpayers may also struggle to keep up with Department of Revenue requirements. Failure to file on time, pay on time, and respond to DOR notices can all result in serious financial penalties for taxpayers. 

Learn more about the various types of taxes collected by the Tennessee Department of Revenue, how long they can pursue unpaid taxes, and how you can resolve lingering tax issues. Looking for more personalized assistance with your Tennessee state tax concerns? Call Damiens Law at 601-476-1361.

Taxes Collected by the Department of Revenue

The Department of Revenue collects a wide range of state taxes and certain local taxes. These taxes are broken down into several categories.

Much of the revenue brought in by the Department comes from business tax, sales and use tax, and franchise & excise tax. However, the state also has the following taxes:

Alcohol and Tobacco Taxes

• Brand registration
• Alcoholic beverage taxes
• Beer taxes
• Liquor-by-the-drink taxes
• Tobacco taxes

Local Taxes

• Litigation tax
• Marriage license tax
• Property tax

Miscellaneous Taxes

• Automobile rental surcharge tax
• Bail bond tax
• Coin-operated amusement tax
• Fantasy sports tax
• Gross receipts tax
• Local occupancy tax
• Motor fuel tax
• Oil and tire fees
• Professional privilege tax
• Recordation tax
• Severance tax
• Unauthorized substance tax
• In the past, the Department of Revenue also collected an inheritance tax, hall income tax, and gift tax.

Tax Collection Timelines and Limitations

Each of the taxes listed above is subject to its own collection schedule and timeline. State, county, and municipal taxes must generally be collected within six years of the year in which the taxes accrued.

There are exceptions to the six-year timeline. If a taxpayer files bankruptcy, the automatic stay prevents creditors—including the Department of Revenue—from attempting to collect. During the automatic stay, the six-year collection period pauses. It continues when bankruptcy proceedings end. 

There is no statute of limitations on the collection of ad valorem taxes. When there are IRS-related adjustments, there is a two-year collection period that begins after the taxpayer is notified.

How the Department of Revenue Enforces State Tax Requirements

The Department of Revenue has broad authority to enforce tax collection, beginning with formal notices to taxpayers and eventually escalating to liens and levies.

Delinquent Tax Notices

They begin by sending a Notice of Proposed Assessment (or NOPA) when a taxpayer does not file a return, a taxpayer has filed but has not paid the taxes they owe, or the Department has completed an audit. The NOPA includes the amount you owe, how to pay, and what will happen if you do not pay by the deadline. If you do not file a return and the Department of Revenue generates an estimated return, you can file a tax return for a more accurate amount.

The next step in the collection process is a final demand for payment. The Department of Revenue sends this if you have not responded to the NOPA or paid your tax bill. If this letter is ignored, the DOR moves on to sending an intent to levy or lien letter. This informs you that the Department intends to levy or lien your assets due to your failure to pay assessed taxes.

Liens

When a taxpayer fails to pay taxes, the DOR may move to place a lien on any property owned by the taxpayer. These liens are superior to all liens established afterward, which makes it very difficult for taxpayers to sell or refinance their property.

Levies

The Department of Revenue uses levies to seize property and use the proceeds to pay off your tax debt. This is an aggressive collection tactic, and it’s often used as a last resort when all other collection efforts have failed.

Interest and Penalties

Throughout the state’s collection efforts, interest and penalties continue to accrue. When there is a balance due, a 5% penalty is assessed for each month or partial month that payment is not made in full. The penalty is capped at 25% of the initial amount due.

The Department of Revenue also charges interest on all unpaid taxes and penalties. The current interest rate is 12.5% and will be revisited in July 2025. Tax debts that are part of a payment plan accrue interest at a rate of 13.25%.

Addressing State Tax Problems

If you’re facing an unexpected tax bill due to an audit, struggling to pay your taxes, or have fallen behind on tax filings, there are various options that may be available to you.

Payment in Full

Paying your balance in full prevents further collection actions and limits the amount you pay in penalties and interest. When possible, this is typically the best solution.

Payment Plan Options

Taxpayers with outstanding tax liabilities can request a payment plan online via TNTAP, the Tennessee Taxpayer Access Point. You select the date when you want payments to begin, set your monthly payment or the number of monthly payments you wish to make, and select a down payment amount. 

If you have had two or more payment plans in the past two years, you must make a down payment of at least 25%. TNTAP will give you the details of your payment plan request before you submit it.

To have your request accepted, you must owe at least $300. Your payment plan can last between two and 60 months. Future compliance is critical if you wish to remain on your payment plan; this means filing all required tax returns and making every monthly payment on time. Failure to meet these requirements may result in termination of your payment plan.

Penalty Abatement

The Department of Revenue offers penalty waivers in certain situations. You must prove that you have reasonable cause as listed in Tennessee state statutes. Approved reasons include:

• Misled by erroneous advice from tax officials
• Legal misadvise from a lawyer or accountant that the taxpayer had no reason to question
• Uncertain or unclear laws and regulations
• An error on the part of the taxpayer which they then resolved by paying the owed amount in full, including interest

You can apply for a penalty waiver via TNTAP or by submitting a Petition for Waiver of Penalty via email. If you owe more than $100,000 in penalties, the Attorney General must approve the waiver.

Offer in Compromise

If you believe you cannot pay your tax debt in full or via a payment plan, you may apply for an offer in compromise. This is not available to taxpayers who are in an open bankruptcy case. Furthermore, taxpayers must have filed all required tax returns, provided supporting documentation, and responded to any requests for additional documentation. 

The Offer in Compromise application requires substantial information on your finances, including your employment, assets, obligations, and net worth. The Department uses this information to determine if you have a financial hardship that prevents you from paying what you owe within the next five years.

Voluntary Disclosure Agreement

Taxpayers who have fallen behind on their taxes can request a voluntary disclosure agreement. As long as they have not been contacted by the DOR regarding their back taxes and they are not the subject of an audit, they may request an agreement that limits the look-back period and reduces or eliminates penalties. Requests for a voluntary disclosure agreement may be made via email or in writing.

Appeals

If you disagree with the proposed assessment, you can appeal the Department’s decision. You may request an informal conference within 30 days of the proposed assessment or you may file a suit in chancery court within 90 days of the final assessment. If you fail to make your request or file within the given time frames, you waive your right to appeal and the assessment stands.

When It’s Time to Consult a Tennessee Tax Attorney

While some state tax issues can be handled without the assistance of an attorney, many tax problems are too complex for most taxpayers to navigate on their own. If you have substantial tax debt or you have failed to pay your taxes for years, you may want to talk to an attorney about your options, whether or not the state can still collect, and if you can limit what you owe via penalty waivers. 

An attorney can also guide you through the offer in compromise application process and negotiations with the Department of Revenue. The appeals process is another area where you may benefit from the professional guidance of a tax lawyer.

If you are already facing tax liens, tax levies, or an audit, it is definitely time to talk to a tax professional. These actions can have serious financial and legal consequences for you, and you must take action immediately to limit the financial fallout.

Benefits of Choosing Damiens Law

The team at Damiens Law brings a specialized knowledge of Tennessee tax law and Department of Revenue processes to the table, allowing us to provide insight into your unique tax issues. 

Our experience with Tennessee tax issues puts us in the ideal position to help you understand your options and decide which path best suits your needs. We’re also prepared to negotiate directly with the Department of Revenue to safeguard your assets and your rights as a taxpayer.

We understand that a lot is at stake when you have state tax issues, and we can also help you deal with problems in Mississippi as well as other states. We offer a broad range of resolution strategies to help you become compliant with DOR requirements and lay the groundwork for a fresh start.

If you’re dealing with Tennessee Department of Revenue tax problems, don’t wait until they escalate their enforcement actions—contact Damiens Law for Tennessee tax resolution services that meet your needs. Call us at 601-476-1361 or schedule a discovery call online to learn more about how we can help you.