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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 common concerns.

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.

Suggestion 1

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.

Suggestion 2

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.

Suggestion 3

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 and prosperity.

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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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:


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