Hazards of Not Filing and Where to go for Help
© by Greta P. Hicks, CPA
WHO IS THE IRS PICKING ON NOW? "YOU, if you have not filed your
federal income tax return." The summer of 1992 began the IRS emphasis
on tracking down and filing returns for persons who have not filed a return
for one or more years. The IRS service centers and district examination
and collection personnel have allocated substantial staff time to GET YOU,
if the shoe fits.
What are their procedures? What are your choices? Should you file
before they CATCH YOU? Would it be better to wait to get CAUGHT? What will
happen when they CATCH you? Do they put people in jail for not filing?
Where can you go for help? What happens if you can't pay taxes they say
you owe? These are just some of the questions and concerns of persons who
owe the government back tax returns. We will attempt to answer the most
The HAZARDS of waiting to get caught will vary with the number of
non-filed years, reasons for not filing, records available, and levy resources.
By waiting, you are allowing the IRS to calculate your tax based upon the
information they have available or can estimate.
HAZARD 1 - The IRS has several court
approved methods of determining income. One common method is to total Forms
1099 and W-2s received from payors of interest, dividends, wages, non-employee
compensation, rents, investment transactions, or real estate sales. Auditors
analyze bank deposits and assume all are income unless you prove otherwise.
Some auditors use a standard of living or net worth approach by an analysis
of the monies spent to arrive at income. Court cases have approved the
"sheet and laundry bill method" to determine income of motels
or hotels, the liquor purchased method to arrive a income for bars and
clubs.In one case the auditor counted the number of bags a bellman carried.
HAZARD 2 - A common MYTH is that the
IRS can only go back three years. TRUE, if you have filed your returns,
the IRS has three years to audit and make changes on your tax return. FALSE,
if you have not filed your tax return. The IRS can go back as far as you
have not filed and file or require you to file income tax returns.
HAZARD 3 - The IRS uses the married
filing separate rate for calculating tax on returns they prepare.. Once
this married filing separate rate is used, they may no allow you to go
back and use the married filing jointly rate. The married filing separate
rate is higher than the single, married jointly, or head of household rates.
HAZARD 4 - When the IRS prepares a tax
return for you, the taxes can not be discharged in bankruptcy. Those persons
who file their own tax returns can with proper planning later have income
taxes discharged in bankruptcy.
The good news is that they rarely put people in jail for not filing.
There is authority in the law to charge people with fraudulently failing
to file and possible criminal charges. However, under the IRS currently
policy, except in criminal cases, the IRS will not prosecute persons who
voluntarily file their income tax return. The good news is that you can
choose to file your tax return and we offer these suggestions to help you
accomplish that task.
If you have your own records, use them. If not, the IRS can mail
you or give you a copy of a computer print our called "Return Payor
File" which is a list of the Forms 1099 and W-2 that they have on
file. Another alternative is to reconstruct your income based upon what
you estimate your cost of living was in those years. Or, call former employers
or analyze your bank accounts.
You can use estimates based upon some concrete information such as
prior or subsequent year tax returns or information from commercial financial
publishers such as Dun and Bradstreet.
Do the very best you can to estimate income and expenses and be careful
to document how you arrived at the numbers on your tax return. Keep in
mind it is more serious to file a fraudulently incorrect tax return that
it is to not file a return. The criminal penalties for purposely understating
your taxes and include files and jail.
Even if the IRS files your tax rerun for you, you can still file
your own original return. The purpose would be to include all allowable
deductions, exemptions and credits and thereby reduce the tax that you
owe. However, taxes arrived at after the IRS has first calculated the tax
may not be dischargeable in bankruptcy.
After you've filed your returns and determined the correct amount
of taxes owe and you still can't pay what you owe, you options are to request
an installment payment agreement or an offer in compromise based upon inability
to pay. See article is ___ issue of ASBA Today on What to do if you owe
the IRS money.
Keep your records for three years after you file your tax return.
The IRS often will audit late filed returns especially if their records
are different from those you have indicated on the return. When three years
is passed, you can breath easily because you will know that those late
filed returns are behind you and you can look to the future for growth
Until that date, concentrate on getting the returns filed. Some IRS
offices in cooperation with volunteers have set up sites to help people
do their tax returns. Look in your local newspapers or call local IRS offices
for locations. Another alternative is to seek professional help from a
certified public accountant, enrolled agent, or attorney who concentrates
in solutions to IRS problems.
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List of Articles by Greta P. Hicks, CPA
GRETA P. HICKS, CPA and former IRS manager, concentrates in solutions to IRS problems and advises business and tax professional on IRS policies
and procedures. Ms Hicks is owner of TAX SOLUTIONS, Inc., a company providing
educational materials and programs on solutions to IRS problems and is
a nationally known speaker and writer on solutions to IRS problems. To
arrange for consultation contact:
Greta's web site: http://www.gretahicks.com
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