Many people may believe that they can get away without filing taxes if they don’t receive any notices in that corresponding year. However, the Internal Revenue Service will investigate and catch up with non-compliant cases in the following years. Non-filing of tax returns can also be subject to civil fraud penalties. Internal Revenue Code 6651(f) provides that if the failure to file is fraudulent, penalties increase to as high as 75% of the tax shown on the return. Once the IRS system discovers those cases, it will send out warning letters and threaten non-filers. If left unresolved, the non-filers find themselves in a tough spot when the IRS freezes their bank accounts, garnishes their wages, seizes or sells their assets, suspends their passports, takes their retirement funds and so on.
If a taxpayer hasn’t filed tax returns in the past few years, it is recommended that they file their returns as soon as possible, even if they can’t pay them off at the moment. If taxpayers fail to file or pay the returns, the IRS will keep adding penalties at an extremely high rate and also charge them interest. To be more specific, for failure to file, the IRS charges 5% of the amount due for every month the filing is late until 25% is reached. For failure to pay, the IRS charges 0.5% each month for failure to pay taxes due until 25% is reached. There is a 0.5% reduction in penalty for any month that the two penalties apply simultaneously, so the maximum combined penalty one can be responsible for is 47.5% of the taxes owed. Non-filers who don’t take care of their delinquent tax returns and payments will generally end up staying in the IRS collection cycle.
Now that the delayed tax deadline has passed, the IRS will more actively and aggressively pursue its collection activities and investigate non-filers. By taking care of back tax returns as soon as possible, non-filers may be able to avoid additional penalties to be assessed during the collection enforcement.
The first step in resolving a tax issue is getting in compliance with the IRS. This means that the non-filers must file all their tax returns for the past six years and pay all taxes owed, including the current year’s estimated tax payments. Then there are a few options they can take.
If qualified, Offer in Compromise allows a negotiation to settle the tax debt for a substantially reduced amount from the full amount owed. In some cases, the taxpayer may be exempt from the tax debt through this agreement. Keep in mind that the IRS can reject the offer if the financial documents are not professionally prepared or the taxpayer is not in compliance with the IRS. For applicants who haven’t filed all of their tax returns or made all required estimated tax payments or deposits, their offers will be rejected.
The Installment Agreement is for those who are unable to make the full tax payment immediately. There’s a limit to how much they can owe to qualify for the agreement for online application. Thus, non-filers should consult with a tax professional for detailed information. If they are eligible for an installment plan, they can pay the tax liability in monthly payments.
Another method is to see if they qualify for a Currently Not Collectible status upon submission of a financial statement. If the taxpayers have no means to pay the debt at the moment or anytime soon, they can request the IRS to delay the collection process until their financial situation improves. Note that this doesn’t mean the tax debt will disappear — the IRS can come back and collect your taxes years later. Other solutions include lien release, release of wage or bank levies, penalty abatement, etc., depending on the non-filer’s situation.
Without these alternative solutions, the amount the taxpayer owes to the IRS can become so massive that they cannot pay the amount. It’s like this huge snowball rolling downhill getting bigger and bigger with growing penalties and interest. In fact, millions of taxpayers in America are delinquent in filing tax returns and are struggling to pay the IRS.
If you’re struggling with tax problems, it is recommended that you seek help from tax relief experts who can guide you through the most suitable resolution method and reduce the liability owed to the IRS to the lowest amount possible. This can resolve your non-filing problems effectively and permanently.
James Cha is a Certified Tax Resolution Specialist at Ace Plus Tax Resolution, providing solutions to taxpayers with IRS and state tax problems.
If you have any questions, contact us at James@AcePlusTaxResolution.com. If you or someone you know needs help with tax debt problems, call us at (213) 600-7388 or visit our website at https://AcePlusTaxResolution.com/.
