Are you worried about the IRS coming after you for your unfiled tax returns? Many companies use scare tactics in order to lure you into using them to file your unfiled tax returns. However, the fact is that in 99.2% of cases, the IRS doesn’t actually follow through with prosecution. The most important thing is having these returns prepared and filed correctly. The worst thing you could do is file your tax returns and fail to show 1099’s and W2’s that you’ve received several years ago. This is the main reason why it is essential to pull your history from the IRS to see what income has been reported on your behalf.
The IRS has several ways to figure out which taxpayers have not filed their taxes. The IRS now teams up with certain states in what is called the Abusive Tax Avoidance Transactions (ATAT), meaning the IRS is in partnership with states to combat tax avoidance. The following states report to the IRS which taxpayers failed to file their state taxes so the IRS may verify if these taxpayers also did not file their federal taxes: Alabama, Arizona, Arkansas, Connecticut, Georgia, Florida, Hawaii, Idaho, Illinois, Indiana, Iowa, Kansas, Kentucky, Minnesota, Mississippi, Missouri, Montana, New Hampshire, New Mexico, North Carolina, North Dakota, Ohio, Oklahoma, Oregon, Pennsylvania, Rhode Island, South Carolina, South Dakota, Utah, Vermont, Washington, West Virginia and Wisconsin.
With the superior technology these days, the IRS has updated their computer systems. These systems scan daily to verify which individuals are not in compliance. This is the reason why they are able to catch more people that have not filed taxes in several years. Everyone has a reason as to why they were unable to file their taxes. Many people state that they didn’t know they had to file, they forgot to file, they thought somebody else filed for them or that they even filed for an extension of time. These reasons will not matter to the IRS. Their job is solely to get you to file your taxes so they may assess fees and collect them from you.
The only way the IRS can assess taxes against you is if you file your own tax returns or if the IRS files a substitute return on your behalf. You don’t want the IRS to file a return on your behalf; the IRS will include all of your income, but will purposely fail to include all of your deductions, which results in owing more money than you actually need to pay. The solution to this is to simply file a new return to bring the debt to a lower amount.
When the IRS catches up with you, they will send you an automated letter asking you to file the years you haven’t filed. In more severe cases, your file will be transferred to a revenue officer. Everything then becomes much more complicated. A revenue officer is very aggressive and also has the ability to audit you as soon as they receive your returns. If you have received an automated letter, we highly suggest that you file these unfiled taxes before it is sent to a revenue officer. The IRS will require that you file your tax returns immediately. In most instances, this is difficult to accomplish, especially under duress.
Currently Not Collectible
What can you do, if you cannot pay the IRS the amount you owe in full?
One of the ways to get out of your tax debt is to be declared “currently not collectible.” The IRS can declare you as being currently not collectible after it reviews evidence that you have no ability to pay the tax you owe. As soon as the IRS determines that you cannot pay any of your tax debt due to an economic hardship and declares you currently not collectible, the IRS must immediately stop all collection activities including levies and garnishments.
While you are in the non-collectible status, the 10-year statute of limitation on tax debt collection continues to run. If the IRS cannot collect the tax you owe within the 10-year statutory period, then your tax debt will expire and you’ll owe nothing to the IRS.
A taxpayer facing significant hardships or tax debt burdens should seek the advice of a tax professional specializing in resolving IRS tax debts.
When done correctly, you can settle your debt with the IRS with their Offer in Compromise program. The program allows taxpayers to settle with the IRS on tax debt that has been incorrectly assessed or for liabilities they cannot afford to pay.
The IRS Code states: “We will accept an Offer in Compromise when it is unlikely that we can collect the full amount owed and the amount you offer reasonably reflects the collection potential…” (Internal Revenue Code section 7122).
Often, it is possible to fully and completely eliminate the taxes you owe – including all penalties and interest – at an enormous discount. There is no preset bottom limit that the IRS will accept to settle your debt especially if your offer is done “right.”
If done correctly, your debt may be settled for only 5-20% of what you presently owe. The key is to determine the least amount that the IRS will accept before you make the offer.
How To Eliminate IRS Penalties
An Abatement can be very beneficial if you can provide an adequate reason as to why you were not able to pay your taxes or were unable to file your taxes. An Abatement not only wipes out your penalties but also helps you reduce your back taxes. There are three ways to present your case to the IRS resulting in abatement; You can provide the IRS with a written statement of a few paragraphs explaining your case, you can set up a verbal interview with the IRS or you can simply provide an 843 form which provides a shortened statement of your case (http://www.irs.gov/pub/irs-pdf/f843.pdf). Whichever option suits you best, it is not to be taken in your own hands. These procedures are far too complicated for the average person to combat. You will require professional assistance. There are certain guidelines and wording that you need to use when it comes to dealing with the IRS.
Did you make any efforts to fix the problem? If you notified the IRS immediately of the reason why you were unable to pay, it will help tremendously. Did you try to pay a smaller amount that you could actually afford? Documentation is your best proof. You need to explain what went wrong through paper and documents. There are several instances in which abatement is provided often:,
If your records were destroyed and it was not in your control,
If a natural disaster damaged your ability to pay taxes & make money,
If your business was the victim of a crime,
Theft which caused loss of your records,
Positions Within The Internal Revenue Service
If you recieve a notice from the IRS, and there is an IRS employee involved specifically on your file, it is important to know what that employee is capable of and what they may be looking for. Their title will be given with any correspondence sent to you. You may read on below for a brief description of the different IRS employees you may encounter.
A Revenue Officer is an employee of the IRS that works solely in the Collections Division. They may either work in a field office or a campus, which is an automated collections site. Their assigned task is to collect the taxes owed by tax payers and little more. They generally have little to no formal accounting education, and may secure tax returns from taxpayers but not audit them. They are capable of filing liens, levies and wage garnishments, along with the ability of seizing a taxpayer’s property in order to collect taxes owed to the IRS
A Revenue Agent
works within in the Compliance/Examination Division. They may work in either a field office, or a campus, which is an automated collections site. Their primary task is to audit tax returns (such as a form 1040, 1120, 1065, etc.), and are capable of auditing anything on a tax return that they feel is necessary to review. They generally like to audit taxpayers in person, but can also audit through correspondence. These agents are considered the accountants of the IRS, and generally have at least a college level of education in accounting and/or tax training. They will ask for all owed taxes to be paid when they complete their audits, but cannot collect the taxes if a taxpayer is unable to pay. They will then forward the case on to a Revenue Officer.
Tax Compliance Officer and Tax Examiner
A Tax Compliance Officer or a Tax Examiner will work
within the Compliance/Examination Division of the IRS, and as with the above will be found in either a field office or a campus (automated collections site). Their primary task is to audit less complex tax returns, and generally conduct their audits through correspondence. The Tax Compliance Officer and Tax Examiner will have a limited formal education in accounting and/or tax training.
A Special Agent is a very serious
agent to be involved with. This type of agent works within the Criminal Investigation Division (or CID). They are responsible for enforcing the criminal laws for the IRS. They sometimes have a formal education in accounting and/or tax training. These agents work with Revenue Agents to audit suspected taxpayers to develop a criminal fraud or tax evasion case. If a Special Agent is involved, and you are convicted of tax evasion or criminal fraud, you could go to prison.