We get clients with back taxes all the time. Not filing your taxes is a serious tax problem. Twenty years ago in IRS seminars, top attorneys of the IRS used to tell us that if you are a CPA and your client did not file in the last three years, he will be subject to criminal investigation and the CPA should consider the case as a legal matter. This may still be the case, but practically the IRS has been more tolerant and has been accepting non filers, we should say, with open arms.
We have clients who have not filed in the past ten years that come to us for tax help. We file for them the unfiled returns which are accepted with no legal complications. Then we seek an IRS settlement, such as an offer in compromise or an installment agreement, after we determine the amount of the back taxes.
This is not always the case and the IRS should not be taken for granted. They can strike at any time and cause massive tax problems for taxpayers in this situation. Unless you have competent IRS tax help, things may deteriorate very rapidly for you.
This will be complicated by any aggressive position you adopt against the IRS such as joining tax protestors groups as in the case of high profile celebrities and athletes. They are ideal candidates for sending strong messages to the public of the long reach of the IRS and to display their muscle as well as their massive and unusual power against taxpayers. This also will be complicated by the amount of back taxes you owe. The higher the IRS tax debt, the bigger your tax problem.
Does that mean that you should be paralyzed into no actions? Absolutely not. The faster you file your prior tax returns the better off you are. Most likely nothing will happen to you if you are quiet and act humbly as to why you did not file. But you will be wise not to assume that you can take the IRS for granted.
Believe it or not you stand to benefit a great deal from filing first your back taxes and then your current taxes regularly after that. Although filing your unfiled tax returns will immediately create a tax debt that you seemingly did not have or you have shoved under the carpet, you must believe that there will always be time for us to face the music.
Creating an IRS tax debt is not something we should take lightly, but it is not the end of the world. Perhaps creating that debt, or rather we should say facing the tax debt, may be the best thing for you. Perhaps you're sitting on a tax settlement that you are not aware of that may wipe out that tax debt clean. Perhaps you will pay that debt in such a way that would not paralyze your financial situation. There are many solutions available to you.
In addition to the tax relief you get from negotiating an IRS tax settlement for your tax debt, tax resolution services may help you get a refund that would otherwise be barred by the statute of limitation. We have seen people losing hefty refunds because they did not file. Furthermore, if you get in trouble with the IRS and you have been filing religiously they will be more receptive for your appeal for tax relief.
Finally, there are the benefits of converting substitute for returns (SFR) into more accurate returns. SFR’s are animals of the IRS creation. If you are not in compliance, you will start receiving IRS notices for the unfiled returns. They, in many instances, will file returns for you.
When they do that their concern is not about your accurate return but about a tax assessment that will create a tax debt they can begin to go after with all the collection arsenals that they have. Their arsenal include actions such as a bank account levy, an IRS seizure of assets and of course the well publicized and heavily utilized tax lien.
But we say SFR is good news for our client. When we see an SFR against a taxpayer we know we stand to do a lot of good and provide competent tax help for the taxpayer; especially if they are self employed. Why do we say that? When the IRS files SFR’s for your unfiled returns, they will ignore the cost of doing business and only include your income.
Let us assume that an office building hired you to install windows and paid you for a job and sent the IRS a 1099 for the money they paid for you installing the window in the building. You charged the building $50,000 for the job but you paid $30,000 to buy the glass that the IRS will not include in their tax preparation. They only have a 1099 for the income that the building sent to them. They don’t go out of their way to ask people if you happened to have paid for any material.
They will file your whole $50,000 as your income. It is your tax problem and on you to defend yourself. That is how the IRS views the situation and that is why we say it is good news when we see SFR because we know we will change the amount of the tax debt. Ultimately this leads to a successful tax resolution case. Additionally, not only does the IRS not take into consideration cost of goods sold but when the IRS does an SFR for you, they consider you as married filing separate, the worst filing status category.
If you owe back taxes you must seek tax help form any source you can. There are many not for profit organizations that provide taxpayers who cannot afford paying for a CPA or a tax attorneyto handle their case. There are IRS tax clinics that lend hands in preparing your unfiled returns. Just make a resolution that you will face your tax problem and start on the road to tax relief. Get stability and peace of mind back in your life.