What Happens If I Don’t File My Taxes for 3 Years?

“Back in 2010, I had a rough year. My Dad died, work was nuts – it just wasn’t a good time,” Glenn , who lives in Southborough, MA, shook his head. “Did I do everything I was supposed to? No.  I didn’t file my income tax that year. Was I intentionally doing something wrong? No – but the fact I didn’t file in 2010 prevented me from filing in 2011 or 2012. What’s going to happen to me?”

Unfiled Tax Returns: Your Questions Answered

Not filing a tax return on time is one of the most common tax problems.  The IRS estimates that 10 million people fail to file their taxes in any given year: if you have unfiled tax returns, you’re not alone.

“I thought the IRS was going to catch up with me right away,” Glenn said. “I expected a knock on my door way back in May 2010. But nothing happened. Now I’m not sure if I slipped through the cracks or if the IRS is going to come after me tomorrow. It’s very stressful.”

Having unfiled tax returns is like walking across a minefield – without any minesweeping equipment! You never know when the whole situation is going to blow up in your face. The truth is that it’s very difficult to predict exactly when the IRS is going to come after you. The IRS’ enforcement capabilities have increased with advances in technology: they’re pursuing unfiled returns much faster than was previously the case. If you haven’t filed your taxes, you should know it’s only a matter of time until you’ll hear from the IRS.

Turn the Situation Around: Get Help Now

Choose an experienced tax problem solver to handle your unfiled tax return situation. It’s always better to file your tax returns before the IRS contacts you!

That way you’ll have an accurate understanding of what your financial situation is. Working with an experienced MA tax professional, you may discover that you owe less taxes than you thought – or that you’re actually entitled to a tax refund! It happens more often than you might think.

Being proactive about your unfiled tax returns buys you time to act strategically. Having more time to find deductions, gather bank statements, and handle all of the other paperwork associated with filing late tax returns is always advantageous to the taxpayer.

Finally, having your MA tax problem solver handle your unfiled tax returns helps you avoid criminal prosecution.  “I really didn’t want to go to jail for criminal failure to file,” Glenn said. “I’m just starting to get my life turned around and back on the right track! Going to jail is not part of my plan.”

While criminal prosecution against taxpayers who fail to file is relatively rare, it’s important to know that IRS policy is generally not to pursue action against taxpayers who voluntarily file late tax returns.  Avoid expensive fines and penalties, as well as the stress and anxiety that comes from living with unpaid tax returns, by getting help now. It’s never too late to file a tax return!

All IRS Payment Agreements Are Not Equal

By Matthew J. Previte CPA MST
www.taxproblemsrus.com
July 7, 2011

If you owe back taxes to the IRS, you have undoubtedly wondered how on earth you’re going to get a mountain of back IRS taxes off your back so you won’t have to live in fear anymore. Living with IRS tax problems is stressful and can cause many problems in your life. One of these IRS tax problems is having an IRS tax levy placed on your wages or bank accounts which leaves you with little to no money to live on. An IRS tax lien can also be filed against you in the public record (usually the county recorder or registry of deeds) which not only lets the world know about your IRS tax problems but severely damages your credit rating by a good 100 points or more, leaving you unable to get a loan. So what can you do to resolve your IRS tax problems?

Although Offer In Compromise is advertised heavily on late night TV, it is rarely an option for most people with back IRS tax debts. Roughly 95% of delinquent taxpayers with IRS tax debts do not qualify for the IRS Offer In Compromise program. Unfortunately, these late night TV hucksters tout the OIC as the magical cure-all for your IRS tax debt woes. There is an old saying, if it sounds too good to be true, it probably is. And so it is with the Offer In Compromise program. Although my tax resolution firm has filed many Offers In Compromise over the last 16 years, most of our clients who owe large back taxes to the IRS do not qualify. Simply put, they have too much equity in assets (bank accounts, houses, retirement accounts, etc) and/or cash flow (what’s left over after what the IRS allows for basic living expenses) to qualify. So that begs the question, what are my options?

While bankruptcy can sometimes be a good option, we will leave that discussion for another article (see archives for February 2011). Short of running out the statute of limitations on collection, which is generally ten years, or hitting the lottery or inheriting a boatload of money and paying off the IRS tax debts in full, the only option left is an installment agreement. However, not all installment agreements are equal.

The IRS has two different types of installment agreements to pay off back taxes. The first type is a Full Pay Installment Agreement. In this type of IRS installment agreement, the monthly payments are sufficient to pay off the back taxes (plus any penalties and interest that accrues) until it is paid off in full. With this type of IRS installment agreement, your payments will full pay the back IRS tax debts, as well as all penalties and interest accruing on the debt, within the statute of limitations on collection. The statute of limitations on collection is generally 10 years. However, there are numerous actions that can extend the time the IRS has to pursue collection action (liens, levies, seizures, etc). We will leave that to another article to discuss.

The second type of IRS installment agreement is called a Partial Pay Installment Agreement. Under this type of IRS installment agreement, the monthly payment is insufficient to pay off the back taxes plus accruing penalties and interest by the collection statute expiration date. What does this mean in plain English? Well, it means that you make payments until the statute of limitations on collection (in IRS speak the “CSED”) runs out. So if at the collection statute expiration date there is $10,000 of unpaid back tax debt, it expires to zero and you do not owe it anymore. Nice huh? There is one catch however. As part of the terms of the Partial Pay Installment Agreement, the IRS will review your financial condition every two years to see whether or not your financial condition (i.e. your ability to pay more) has improved. If it has, they will require a higher payment if your financial condition shows you can afford to pay more towards the back tax debt. The downside of this type of installment agreement is it is possible that in the future your financial condition improves and the new monthly payment required becomes sufficient to full pay the back taxes, penalties, and interest by the collection statute expiration date. In other words, it’s possible to start out with a Partial Pay Installment Agreement and end up with a Full Pay Installment Agreement. The positive aspect of a Partial Pay Installment Agreement is that if your financial condition does not improve enough or at all, you could still end up paying less than the full amount owed and end up with a large balance of unpaid back taxes expiring to zero at the collection statute expiration date.

With all IRS Installment Payment Agreements, your financial condition is reviewed via a Form 433-A and/or 433-B depending on whether your tax issues are personal or business tax debts. Individuals and sole proprietorships use the Form 433-A while corporations, partnerships, and LLCs use a Form 433-B. If you owe personal taxes and have income on your personal tax return from a flow through entity (S corporation, partnership, or LLC treated as an S corporation or partnership), you may have to submit both the Form 433-A and the Form 433-B to get your installment payment agreement approved.

There are strategies to minimize your monthly payment amount but that will be discussed in a future article. Also, just because the IRS initially denies your IRS installment payment agreement does not mean you should give up. Many initially rejected IRS installment payment agreements were later accepted upon filing an Appeal to the IRS Appeals Division. Persistence and perseverance are key to obtaining a fair IRS installment agreement that you can live with.

Small Business Owner Saves $15,000

Jim had not filed returns for seven years. He was petrified of what lay in store for him with the IRS. Fortunately, the IRS had not caught up to him yet but it was only a matter of time before they would. Our firm worked to organize his business records and prepare a set of books for each year. After preparing and filing all his returns, we filed and negotiated an Offer In Compromise settling his delinquent tax liabilities for far less than he originally owed. Jim was glad to be back on track and out of debt with the IRS.