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Unfiled Tax Returns
05
Feb

Unfiled Tax Returns

Written by Alex Mendoza and Marina Stolbovia Be the first to comment!

Haven’t paid your taxes in 5 years? 10 years? Have unfiled tax returns?

Have a tax debt of $30,000 or more?

Don’t panic! At MendozaCo, we are here to help.

Failing to file or pay for your taxes can bear some serious consequences.  Not only is it the law to file your taxes, but the unfiled tax return debt will also continue accumulating penalties and interest.  On top of that, the IRS can legally levy your assets, stop business operations, garnish future tax refunds and your paychecks, and can even prevent you from obtaining your professional license or a passport.  Although it is relatively unlikely that you will be sent to jail, the penalties and interest alone are enough to get anyone nervous.  Even famous celebrities can’t escape the fright:

    

“In my daily life, the goal was to muffle the anxiety that I’d feel as I tried to drift off to sleep knowing that, at any point, what little money I had in my bank account could be garnished by the IRS”.

-Anthony Bourdain

We understand that filing or paying your taxes can be a daunting task.  Many Americans overlook their taxes for a multitude of reasons - maybe you were sick in the hospital, you were afraid to file because you didn’t have the money to pay, or you just never got around to it.  Regardless of your reasoning, you are not alone.  In fact, approximately seven million Americans fail to file federal income tax returns every year.  We see these kinds of things all the time; it is nothing to be ashamed about. Together, we can come to an effective solution.

 

Step 1:  You need to be in COMPLIANCE:

If you haven’t filed, you should first file your current return and the prior six years' tax returns as soon as possible to begin to bring yourself into compliance with the IRS.  Remember: compliance is key!  This will be essential for subsequent actions to get you back on track to being tax debt-free.  The IRS considers a taxpayer to be in compliance if returns have been filed up to six years and the current tax year.

For some filings, however, the IRS will file the tax return for you, a procedure called a Substitute Filed Return (“SFR”).  The IRS is not filing the tax returns to help you.  The SFR creates the assessment (Inflated IRS tax bill) and starts the collection process against you without you being aware.   The SFR is a legal procedure within the IRS IRM (Internal Revenue Manual).

In the case that there are SFRs, we will need to replace them with your actual tax return in order to adjust the IRS inflated assessment (the tax bill).  Remember, we only need to file the prior six years to be in compliance, but if we can identify any SFRs beyond the sixth non-file years, we would need to also file those additional tax returns.  SFRs can significantly inflate your tax bill for the Installment Agreement (IA), so it is important to identify and replace the SFRs with your actual tax returns.  Make sure to file the required tax returns and stop the bleeding.  If we perpetuate the cycle of non-filing, the bleeding of additional penalties will continue to flow.

Here is the tricky part - we need to be careful about how many unfiled tax returns to submit.  Sometimes submitting too few can result in a criminal act called tax evasion or audit exposure, while filing too many may end up paying more than you should!  But don’t worry, tax resolution is our specialty!

 

 

- IRS Internal Revenue Manual (5.14.1.4.1)

 

“Six-Year Rule: When a taxpayer is unable to full pay immediately and does not qualify for a streamlined installment agreement, the taxpayer may still qualify for the six-year rule. “

 

 

- IRS Internal Revenue Manual (5.14.1.4.2.8)

 

"Compliance and Installment Agreements (IA): Prior to granting IAs, ensure that tax returns due within the past sixteen months were filed. If not filed, address compliance even if a Del Ret is not indicated using the procedures provided in IRM 5.14.1.4.1"

 

Now what?

Now the clock starts ticking. Don’t worry, though, not in a bad way! It’s important to submit your returns and be in compliance with the IRS in order for the statute of limitations on the collection period to begin. The IRS has a statute of limitations for collections of 10 years.  Meaning, once you file your taxes, the collection period begins, and if your debt has not been collected within 10 years, the remaining balance of your debt will be removed and you will no longer be liable to pay it.  Of course, a ten-year-long waiting game sounds exhausting, which it is, but it will at least get the ball rolling!

Now that we are in compliance with the IRS, we now need to look into your financial situation and your ability to pay.

 

Step 2:  What Are my Payment Options with Uncle Sam?

Once we stop the bleeding, we finally start to strategize a game plan. This is where we come in and do what we do best.  There is no one-size-fits-all solution. We approach each individual tax problem with a unique and individual strategy, placing you in the best outcome possible.  In assessing your financials, we first prioritize you and your family’s needs.  Before you address your tax burden, we first need to make sure that you have food on your plate, a roof over your head, and you are able to pay all of your necessary living expenses such as;

  • Food, Clothing and Other Items (Housekeeping supplies, Apparel & Services, Personal Care Products & Services, and other Miscellaneous,
  • Out of Pocket Health Care, Health and Dental Insurance,
  • Housing and Utility Expenses (Including Mortgage and Property Taxes),
  • Local Standard Transportation Cost such as Car Ownership Costs, Operating Cost or Public Transportion.  

 

This will allow us to see your ability to pay. Your ability to pay is the remaining disposable income after we take into account all of your necessary living expenses. Then, we will look into the following options:

 

Step 3: Installment Agreements:

An installment agreement is an IRS program that allows you to pay back your tax debt in monthly payments.  We determine the monthly payment amount using your ability to pay.  After taking into account your financial needs, the remaining amount is the disposable income and this amount is what is available to be used to pay back your tax debt.  Even if your ability to pay is one-hundred dollars on a one-hundred thousand dollar tax debt, that can be your monthly IRS installment agreement.  In order for an installment agreement to be accepted, though, you will need to be in compliance.  This is why compliance is key - the IRS will not work with us unless you have followed the correct requirements.

You must evaluate other conditions as well. For instance:

  • If you’re considered self-employed, you must be up-to-date on all your quarterly estimated tax payments for the year.
  • Do you have equity in your assets? If you cannot access the equity, the IRS can't garnish it.

We need to evaluate your ability to pay, assets and safeguard what the IRS can garnish.

Don’t tackle your tax debt alone.  Consult your local tax experts and save yourself the money, time, and energy needed to fight the IRS alone.  Settle your tax debt and close this chapter.  At MendozaCo we understand how stressful and possibly embarrassing this process can be. 

Remember, this is what we do best!  We are here for you and are determined to help.

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