Navigating IRS Non-Filing: Consequences, Remedies, and Professional Guidance

The Internal Revenue Service (IRS) does not lightly pursue non-filers, but the consequences of non-compliance can be severe. If you have not filed your taxes for more than ten years, let alone twenty, it is crucial to understand the potential repercussions and the steps you can take to correct your past mistakes.

Severe Consequences of Non-Filing

The IRS has the authority to take several drastic steps against non-filers. These measures include:

Freezing of Assets: The IRS can seize any of your assets, such as bank accounts, investments, and even real estate, to recover any back taxes owed. Liens on Properties: A tax lien can be placed on your home, car, or other properties, making it impossible to sell them without first clearing the debt. Garnishment of Wages: The IRS can garnish your wages to recover unpaid taxes from your paycheck directly.

According to the provided information, it is imperative to file the current year's tax return (2023) and the previous five years' tax returns to bring yourself into compliance before the IRS begins its investigations.

Understanding IRS Correspondence

The IRS might send you correspondence regarding your tax obligations, but if you have changed your address, you might not receive these notices. As seen with one of the clients, it can take a while, but eventually, the IRS discovers the unfiled tax returns.

In one dramatic example, a client only opened a bank account after 10 years of non-filing. Upon this discovery, the IRS was able to assess a tax liability of $38,000. It's crucial to update your address with the IRS immediately to ensure you receive all necessary communications.

Potential for Settlement and Penalties

Historically, the IRS has not been as aggressive in compelling non-filers to file their returns. However, this might change with increased resources, more agents, and improved technology. If you have not filed for a significant period, the IRS may contact you and seek back taxes, plus penalties.

For better or worse, the IRS's behavior can change. If you decide to file the missing tax returns, you might be able to negotiate a settlement to reduce your penalties, and a professional can help you with this process.

Engaging a CPA for Professional Help

Utilizing the services of a Certified Public Accountant (CPA) is recommended when dealing with decades of unfiled tax returns. The IRS's computer system is known to generate estimates of your tax liability, based on the information it has received from W-2 and 1099 forms. A CPA can help you understand and evaluate the situation accurately.

Typically, if you have not heard from the IRS in years, you may not owe any taxes unless you have been self-employed all these years and never received any 1099 forms. The IRS's system factors in your reported income, and if you owe, they will send you a bill.

However, there are scenarios where non-filers have owed significant amounts of tax. In such cases, contacting the IRS proactively can be beneficial, as it allows you to negotiate a plan and potentially ease the penalties. The IRS also offers programs like the Offer in Compromise to help settle your debt.

State Tax Obligations

Once you file with the IRS, you may also need to address your state tax obligations. The IRS will inform the state about your income, and the state will then expect you to file and pay any state taxes due. If you have not been paying state taxes, you may face penalties and interest.

In summary, if you have not filed your taxes for a prolonged period, it is crucial to take action as soon as possible. Understanding the potential consequences, the IRS's behavior, and the importance of professional guidance are essential steps in resolving this issue.