Volume 14 Issue 1
Handling Non-Filer Cases - Part I:
The First Meeting
© by Tax & Business Professionals
Some of the most difficult cases for many professionals to handle are Non-Filers,
individuals who have not filed state or federal tax returns, often for many
years. While Tax and Business Professionals, Inc., does not directly handle
Non-Filer cases, we will present the insights of a tax attorney who has handled
numerous non-filing cases, some involving non-filing for up to 20 years.
Non-Filers are a diverse bunch, often including CPA's,
politicians, military and police officers, to name but a few of the unlikely
types who fail to file.
One 20-year Non-Filer was a commercial photographer who received 1099s each
year from Fortune 500 firms. Prior to retaining an attorney he had never been contacted by
the IRS. While the common
perception is that the IRS computers will catch such non-filers, the opposite is
often true. Anecdotal experience is
that many Non-Filers escape detection, often for quite some time.
At the first meeting, the Non-Filer signs a Retainer-Fee Agreement and an IRS
Power of Attorney ("POA"),
Form 2848, and agrees to pay and to replenish a retainer.
From thereon the Client is required to maintain a credit balance. Why? Non-Filers tend to be procrastinators, a trait which often contributes to
their problems. In addition to
being slow payers or non-payers, they are frequently risk-takers. If they are
willing to take risks with the IRS, they are also likely to try to avoid paying
tax professionals too.
Non-Filing cases are one clear instance where a tax professional needs to be
concerned about the psychological problems of his or her clients. It is common for Non-Filers to attempt to talk their way out of every
problem and consistently to blame others. "It was the fault of my
prior spouse, former associate, former employer. . . ." The first task is to get the Non-Filer to shoulder responsibility for the
past, both financially and mentally, in order to move forward.
The retainer replenishment system helps enforce discipline. Most people will not pay money to resolve their tax issues unless they
are serious about it. Often, Non-Filers
are trying to get their acts together because they are about to remarry or are
tired of hiding in fear. IRS wage
garnishments and levies are also powerful motivators for getting into
compliance. Non-Filers often have to be pushed into compliance mode and
counseled about getting things done.
At the initial meeting, usually without the accountant present, the gravity
of the situation is explained -- specifically, that non-filing can result in
criminal penalties. If criminal
penalties are imposed, usually the IRS later pursues the Civil Fraud Penalty as
well, which is why tax criminal cases are called a "double
A key objective of IRS Special Agents is to obtain criminal convictions and
newspaper coverage. There will inevitably be a bulletin board outside the
Agentís office sporting assorted clippings of successful IRS criminal
prosecutions. This is the in
terrorem aspect of tax law enforcement.
Despite the Draconian effect of criminal penalties, the IRS Special Agents
enforcing tax criminal laws are often rather selective, tending to pursue the
most egregious cases. Probably to
keep everyone on their toes, occasionally even "small
potato" taxpayers are criminally prosecuted.
More often than not, the IRS does not impose criminal penalties and is much
less likely even to consider criminal or civil fraud prosecution if the taxpayer
comes forward and begins compliance. This
is one reason for the early filing of the POA.
The basic facts should be obtained and an opening
memorandum prepared outlining the Non‑Filer's
reasons for failing to file. Often
a divorce, business failure, job layoff, or illness is the initial culprit. The reasons become important later if there is an attempt to abate
penalties or file an Offer in Compromise. The
initial memo also serves to jog the Client's
memory, chart a course of action, and, finally, familiarize the return preparer
(usually not the Attorney) with the case.
In our next issue, we will consider the actions to be taken
and matters that should be considered in the next phase of a Non-Filer case.
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Published jointly by The Tax & Business Professionals, Inc. and the law firm of Newland & Associates as a service to their clients.
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