If you haven’t filed your 2010 or earlier Tax Returns, it’s a good idea to prepare that as fast as you can! There are several good reasons for the urgency. Not to scare you to death, but usually it takes them a few years to catch on and you may find yourself in the IRS bulls eye. Not only can the IRS prepare a return on your behalf showing that you may owe much more than you really would had you filed, they can ALSO investigate you civilly or criminally for not filing. On the civil side, you can go to jail for one year for each year you haven’t filed. On the criminal side, it’s much worse, and depending on how much you owe (damage to the government) and how flagrant and/or repeated the violation you can go to jail for a lot longer. In many cases, this threat is used as a whipping post to bring you into compliance. Think about it. Most people will be willing to agree to pay just about anything to avoid the interruption of having to spend a long time in jail. Like I said, this isn’t to scare you, but sometimes the knowledge of what can happen is very motivating. I’ve seen these cases and it’s not pretty and as a general rule, a criminal investigator is not looking out for your best interest.
The good news is that most of the time the IRS is really just interested in getting you back into the system. It sure looks better if you are proactive and do this on your own rather than after they knock on the door. Believe it or not, they CAN still prosecute you AFTER you file, using the tax returns as evidence that you knew you should have filed! It’s like robbing a bank, paying the money back doesn’t negate the fact that crime was committed when the bank was robbed! However, this type of thing would only apply to the most egregious cases. Most of the time the IRS would be satisfied if you just stepped forward and took care of the problem. Frequently, when people come in and meet with use we encourage people just to file and get on with the process. However, sometimes if there are indicators that this is a much more significant problem we will work in you AND AN ATTORNEY to get you back into the system as safely as possible. Sometimes it’s worth the additional cost.
The problem with a self-employed person that hasn’t filed is that the IRS can’t see the expenses, so based on the large 1099s it appears that you may have made a lot more money that you did. They can prepare a return for you that is based on the gross numbers and then begin collecting on that! Or worse, if they think you made lots of money, and determine that the reason you didn’t file the return was for the purpose of not paying them, then they could then open a criminal investigation. I can’t think of a bigger bummer!
What a LOT of people don’t know is that if the IRS prepares a return for you, they will send a notice to your last known address. If you don’t agree with the IRS’s numbers, you can protest it. However, if you don’t respond, or even worse, if you have moved and don’t get the correspondence from the IRS, then after the protest time period elapses, then the balance becomes LEGALLY DUE. In many cases that I’ve worked on like this, the person doesn’t even know that the they owe the IRS until the IRS levies their bank account (takes all their money), or even worse, garnished their wages (takes the paycheck)! The bummer about a wage garnishment is that it is CONTINUAL, meaning it’s EVERY paycheck until it’s fully paid or you work out some kind of arrangement with them. But even if you are working with them, the whole time you are getting the financial information and documentation that they demand, they continue to keep the paycheck!
I’m sorry, as I know this is a lot of gloom and doom, but I just see this all the time and I want you to know now, BEFORE anything bad happens so that you have MORE CONTROL and less damage!
Another weird thing about a late filed return… The IRS has 10 Years to collect the amount due on a tax return that has been FILED. If you haven’t filed, there is NO LIMIT on how long they have. But guess what? If you have a refund due to you… you have 3 years to file and get a refund! If you don’t file within three years, you lose your refund completely. So let’s say you haven’t filed for several years and one of the years is a refund from five years ago, guess what? You can’t even offset the other liabilities. You lose the refund and they can collect all the other years in full! You certainly can see clearly who writes the rules. Unfortunately they are not written in your favor!
I feel really bad about writing such strong words and don’t want to give the appearance that I’m trying to scare you. Please look carefully and don’t shoot the messenger, I’m ONLY explaining what the rules are, and it’s the RULES that is causing the fear (or anger, as some of this makes me angry too)!
We have help a LOT of people to file old tax returns, fix their tax problem and get back into the system. If you feel that you could use some help, please call us and let’s get together to discuss it!