There are many reasons a person or business does not file tax returns and become non-filers. One reason could be ignorance of the fact that they need to file a tax return. Another reason is usually fear that the IRS will take collection action against the individual after they filed the return. The most common reason is that the taxpayer has a large current tax debt and they do not want to see it get higher. These are just a few of the reasons that taxpayers do not file their tax returns. Regardless of the reasons, you are asking for trouble if you do not file your returns. The IRS assesses penalties and a higher interest rate on delinquent taxes. Ultimately, if the IRS suspects you are intentionally refusing to file your tax returns, the IRS can and will pursue criminal charges against you the taxpayer. So, how does one work themselves back into the system and into the IRS's good graces before substituted returns are filed and collection actions take place? The keywords are “Tax Compliance”.
Every taxpayer should understand the basic concepts of tax compliance. This is important regardless of if you are a current non-filer or working through a structured tax resolution plan. Tax compliance is the key to resolving your tax resolution issues.
When I say tax compliance, it means different things for an individual vs. a business.
For an individual, being in tax compliance means the following:
- All current and past tax returns due have been filed with the IRS;
- If a W-2 employee, sufficient taxes are withheld from each paycheck; and,
- If self-employed, the taxpayer is making all estimated tax payments each quarter as required.
For a business, being in tax compliance means the following:
- Being current on all estimated quarterly tax payments
- Depositing your payroll taxes on time each period; and;
- Filing all current and past corporate or partnership tax returns.
The steps bulleted above are the first actions that must be taken to get the taxpayer out of non-filer status and towards a path of resolving the taxpayer's tax resolution issues. The IRS will not accept any Offers-in-Compromise, partial pay installment agreement applications, or currently non-collectible application without the taxpayer being in compliance. Regardless of which tax attorney you use, they will all ask the same bulleted questions above and resolve them before moving forward with an offer or installment agreement. The main reason for this is that the tax professional does not know the full extent of your tax debt issues until you are brought into compliance and the IRS will not entertain any negotiations until you are in tax compliance. Without having any tax returns filed, how would the attorney know if you have $100 of back tax debt or $1,000,000 of tax debt? Also, the analysis and scope of work increase with the complexity and size of the taxpayer's tax debt.
The next question is how many tax returns must I file to meet the requirement of filing all past and current tax returns. The IRS only requires a taxpayer to file six (6) of the most recent tax returns to meet the requirement. For example, if the taxpayer has 10 years of tax returns that need to be filed, the IRS will only require the taxpayer to file the most recent 6 returns. This is very beneficial because the taxpayer does not need to expend the cost of having more than 6 returns completed. Also, the other returns could have a high amount of taxes owed that the taxpayer does not have to include for consideration in their current total tax debt. I would not recommend anyone trying to hold off on filing a tax return to try and gain this particular benefit. Remember, it can be criminal to not file your tax return. Also, there are instances in which the IRS will force file (Substitute for Returns ) your tax return. I will go deeper into this in another blog.
The last question is why does the IRS care if I am current with my quarterly tax payments or having the proper amount taken out of my check each pay period? The answer is simply that the IRS does not want you to create a new tax issue while you are resolving your current tax issue. For example, let us assume your attorney has successfully negotiated an offer-in-compromise (OIC) for your case, however, your business has not been paying any of its quarterly income and payroll taxes for the current year. In most cases, if these payments are not made when required, they are too large for the taxpayer to pay in full when they file their taxes. As a result, you have a new large tax bill that needs to be resolved. Also, because you are not in compliance and have this new tax debt, your brand new OIC that was just settled on your behalf is deflated. So all the time and money the taxpayer put into settling their debt has been for not. There will be some people that say they can't pay their quarterly tax payments and maintain their current standard of living. In this case, the problem could be that the business is not viable. That is a discussion to have with the tax professional.
Bring Your Case to Our Team
At Napoleon Law Firm, our attorney routinely represents taxpayers in IRS civil tax cases located in Memphis and Jackson Tennessee; Southhaven, Horn Lake, Olive Branch, and Oxford Mississippi; and, West Memphis Arkansas. Because I am a licensed attorney, I can represent IRS cases across the country. To obtain help getting in tax compliance and one step closer to freedom from your tax debt, please feel free to contact me at (901-335-4541) or [email protected].