What do you do when you fail to file your income tax return? The common stereotype among taxpayers would be that the Internal Revenue Service will ship you to jail. There is a difference between tax fraud and failure to file taxes. Tax fraud is tax evasion. It is the illegal and intentional attempt to avoid or flee assessment of a tax. On the other hand, failing to file your tax returns is not a crime unless done to the extreme. We’ll discuss this in the article.
According to the IRS, as stated on their official website, the federal tax authority does not pursue criminal prosecution of taxpayers who fail to pay their taxes. This statement, however, comes with some conditions. The taxpayer should voluntarily file or arrange to file returns before a notification for criminal prosecution is placed. The IRS is a federal authority, charged with the responsibility of collecting taxes, not a tribunal. Though many people find the IRS intimidating, it is essential that you understand that the IRS is not out to fill the American correctional system but to recover their dues.
Consequences related to IRS taxes owed
1. Penalties and interest
Failure to file tax returns in time is punishable by penalties. Penalties and IRS taxes owed are both subject to interest. This means that the longer you take to respond the higher amount you are obligated to pay. Penalty and interest calculations determine your total IRS taxes owed. Once the IRS estimates the amount owed, they reserve the right to claim the money. As a collection process, the IRS has the power to garnish a defaulting taxpayer’s wages, bank accounts and sometimes imposing federal liens on the taxpayer’s property.
2. The IRS will prepare substitute returns
Based on the copies of W2s and 1099s, the IRS is able to prepare for you substitute returns. It is your responsibility to respond to these forms or suffer penalties.
What do you do when you find yourself with multiple years of unfiled returns?
As a tax resolution firm, we have resolved tax issues involving unfiled tax returns. It is not unusual for our tax professionals to receive calls from clients who have multiple years of unfiled tax returns. Do not fear, contact us today to review your options.
What we do in such situations, we have the client file the last six years worth of returns. This is because, under the Internal Revenue Manual 4.12.1, the IRS can only demand that the taxpayer file the last six years worth of returns. The criminal statute of limitations for the failure to file is only six years. That is all the federal tax body can typically demand without approval by a high-level manager.
The major challenge of failing to file returns is not knowing how much you owe. To find out the quantity of your IRS taxes owed, you can apply or request for your tax transcripts. If you owe less than three years of unfiled tax returns, you can ask for your tax transcripts electronically via the IRS official website. For over three years worth of unfiled tax returns, you can call the IRS or hire a tax resolution firm like True Resolve Tax Professionals to do your bidding.
Resolving IRS taxes owed
There are at least five solutions to IRS taxes owed. Without a detailed wealth of knowledge about the inner workings of the IRS, it is virtually impossible to navigate this minefield alone.
1. Expiration of the statute of limitations
An IRS debt is not a life sentence. There is a 10-year statute of limitation governing the IRS collection process. What this means is that the IRS has ten years to collect the debt. When you file a return, it gets assessed, and if ten years run out without you completing the tax obligation, the IRS is no longer able to collect on that debt and the tax lien goes away. That is the Law.
2. Status 53
If the IRS examines your ability to pay and concludes that you cannot pay, they will place your account in a non-collectible or hardship status (status 53). Under the hardship status, the IRS will not demand what you cannot afford to pay. Instead, collection suspension of the tax liability through the duration of your hardship is effective.
3. IRS payment plans
The Internal Revenue Service does offer delinquent taxpayers payment plans (IRS installment agreements). IRS installment agreements are a payment plan designed to repay your tax liability through monthly installments. These include partial pay, tiered agreement, full payment agreement, and the streamlined agreement. Every client’s case is unique, that is why at True Resolve Tax we guide clients to the best payment plan fit for their situation. The statute of limitation applies.
4. Innocent spouse relief
Innocent spouse relief applies when you have a former spouse who generated the tax debt, and you are just a victim in the whole situation. The burden of evidence lies with you. You have to prove your innocence. At True Tax Resolve Professionals, we shall help you file the necessary documentation and represent you should the need arise.
5. Offer in compromise
Probably the most economically beneficial tax resolution solution. It is a way of making a deal with the IRS to pay less than you owe. You do not just qualify automatically for the offer in compromise, and there is a criterion to determine who is eligible and who is not. At True Tax Resolve Professionals, we assess our clients for eligibility. Once we find you suitable, we greenlight you to apply for the IRS Offer in compromise.
Discharge of taxes is possible in the case of bankruptcy. However, it is not 100% certain. Particular circumstances of bankruptcy warrant a tax discharge. Discharge of income taxes in bankruptcy is possible. However, the release of payroll taxes and priority taxes is not guaranteed.
In conclusion, tax problems and issues can happen to anyone. Regardless of age, race, or gender. Failure to file your returns in time could land you in a pit of penalties and interests. If you are already in this pit, we encourage you to call us for a confidential consultation. Alternatively, you can walk into our Denver offices for face to face engagements. Equipped with qualified tax professionals who are enrolled with the IRS, we are the tax resolution service of choice. Remember that lack of knowledge about tax may come as a disadvantage should you decide to tackle the IRS on your own. We keep up to date with the ever-changing tax laws, and we understand the IRS. We believe that life should be simple. Allow us to march into battle on your behalf.
True Resolve Tax Professionals, Your Number One Tax Resolution Partner.