Delinquent in Filing Your Taxes?
Haven't filed your taxes for the past two, three, four, or more years?
Stop worrying, it won't help.
Don't worry about what you might owe. Filing your returns is crucial in order to minimize the financial impact and to keep the IRS from going into a collection enforcement mode.
Once enforced collection procedures kick in that's when things can get hectic.
It's best to show that you have the right intentions and are trying to manage your tax situation in a responsible way.
The IRS will work with you in setting up a payment arrangement that you can realistically manage.
Things to Keep in Mind
Never ignore IRS notices!
Once a series of computer-generated notices have been issued, ignoring them will trigger enforced collection procedures without any human intervention from an IRS employee.
Your wages could be subject to an IRS levy costing you 50% of your take-home pay!
Don't worry, simply not filing an income tax return is not considered fraud.
If your only reason for not filing was your inability to pay the tax (the biggest reason) or you just procrastinated, this is not fraud, you're just a delinquent taxpayer. Committing fraud takes an act of commission.
For example, intentionally making false or misleading statements or intentionally submitting false or misleading documents to the IRS would be considered an act of fraud and a fraud penalty would be justified.
Not filing an income tax return is an act of omission (as opposed to commission) and therefore, is not fraud.
The lesson here is, NEVER intentionally make false or misleading statements or provide any false or misleading documentation to the IRS.
If you should be assessed a fraud penalty and you know it is not justified, attach Form 843, Claim for Refund and Request for Abatement to your letter explaining the reason for not filing.
Tip: Use Form 843 as a cover letter.
It's a good idea to attach Form 843 to your letter. Keep in mind, if you don't attach Form 843 to your letter your letter may be ignored and find its way into the bureaucratic abyss, never to be heard from again!
At the top of Form 843 write the following:
Demand for Abatement of Tax Pursuant to Code Section 6213(b).
What to do if you can't afford to pay the tax:
If after having your tax returns prepared you end up with a tax liability that you can't pay, file Form 9465, Installment Agreement Request
By filing this form you will greatly reduce enforced collection procedures by the IRS.
Offer in Compromise
If it's impossible for you to pay the tax in three years, consider an Offer in Compromise where, if you qualify, you can end up paying 10 cents on the dollar.
If the IRS feels, based on your circumstances, that they have a better chance collecting 10 cents on the dollar or nothing at all if they don't accept your offer, they will give an Offer in Compromise serious consideration.
New Offer in Compromise rules went into affect back in July 2006.
The Tax Increase Prevention and Reconciliation Act of 2005 was signed into law on May 17, 2006. Section 509 of this law creates significant changes to the IRS Offer in Compromise (OIC) program by amending IRC 7122.
The TIPRA law went into effect for all offers submitted to the IRS on or after July 16, 2006.
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Have an accounting or bookkeeping question? Email it to me.
- Return to the Filing Taxes Table of Contents to find related links.