In a recent article in Fox Business, tax attorney Bonnie Lee discusses an issue that thousands are facing in regards to the IRS: How do I overcome my fear of the IRS and become tax compliant once again? When it comes to issues with back taxes or unfiled returns, understanding how to resolve the issue is essential.
According to Lee, thousands of Americans have not filed tax returns in years, with fear being a main component in their reluctance to file. Many are afraid to come forward because they believe that calling attention to their failure to file returns in a timely manner will land them in jail.
For those Americans who are fearful of jail time as a result of their noncompliance, Lee remarks the IRS is not actively seeking to put people in jail. From personal interactions with an IRS revenue agent, she learned that the goal of the IRS for American taxpayers was “for everyone to work, make money, and pay taxes.” She also states that in the thirty years she has been in the tax field, she has never seen a taxpayer end up in jail.
In one case, Lee assisted a taxpayer in re-entering the system after failing to file tax returns for the past 18 years. The taxpayer had not filed a return since 1985, but he was now prepared to file the outstanding returns in an effort to become compliant. Despite fears of what he may owe, he and Lee worked together to sort through the data he had saved in storage. Interestingly enough, after all returns were organized, it came to light that had the taxpayer filed in a timely manner, he would have received over $65,000 in refunds over the past two decades.
Unfortunately, the opportunity had passed for claiming the refunds, as they had expired by the time he had decided to become compliant. It is only possible to receive refunds for returns filed up to three years late.
In some cases, taxpayers are reluctant to file their tax returns because they do not have the correct documentation, such as W-2s or K-1s. Lee notes that this should not be an issue, as the IRS has a record of any documentation that you may receive from third parties. If you need the information, you can simply request a free transcript from the IRS.
If you do not file your returns, the IRS will often use this to file the returns for you. The return filed by the IRS, called a “substitute filed return” (SFR), is filed in a way that is least beneficial to you as a taxpayer—no deductions with only the information derived from the documents. In place of refund, you will receive a large tax bill that is an expensive and inaccurate assessment. The aim of the IRS could be to force you to pay attention and to file a return.
Taxpayers who are self-employed must file additional documentation regarding their business income and expenses in the form of a Schedule C. If information cannot be derived from bank records, it is acceptable to make estimates for the IRS using industry standards as a guide.
Many taxpayers elect to hire a tax attorney to help them with any back taxes or unfiled returns that they may have. Having the guidance of an experienced tax attorney can make all the difference when dealing with the IRS.Segal, Cohen & Landis 9100 Wilshire Blvd. Ste. 601E Beverly Hills, CA 90212 (310) 285-3999