Frequently Asked Questions Concerning Delinquent IRS Tax Returns

What should I do if I have not filed a tax return?

Failure to file a tax return is potentially a criminal matter just as is the act of filing a false return. Failure to pay a tax is usually treated as a civil matter as long as the return is filed. There is a LOT of difference, as Al Capone would certainly agree had he not already died in Atlanta's Federal Penitentiary where he was incarcerated for income tax evasion.

If you have not filed a Federal Tax Return(s), we urge you to do so immediately, and can prepare one for you.

As a general rule, you should file for at least the most recent six years. Basically, you should file in the same manner as you would for a current return. The exceptions are that late returns cannot be filed electronically, and you cannot use a 1040A. IRS will calculate your penalty based on a number of criteria and advise you accordingly.

Generally speaking, IRS will not prosecute a taxpayer for, 'Willful Failure to File' even if he/she has not paid all or any of the tax due as long as the taxpayer files the return(s) voluntarily, i.e. before they catch up with him/her.

What is a, 'Substitute Return?'

IRS will prepare and file a return for a taxpayer with any available figures if he/she has failed to do so and it learns of income you have received but not reported. This typically happens where such information has been provided to IRS by third parties on a W-2 or 1099 Form where contract work was performed but no taxes were withheld.

If IRS prepares and files a Substitute Return, you will only be allowed one exemption and the standard deduction. If you have other exemptions or deductions, such as mortgage interest or taxes, you should file a correct return as soon as possible. If you do not do so, IRS will proceed to collect the liability shown on the Substitute Return it filed for you.

What is the penalty for, 'Failure to File?'

The, 'Failure to File' penalty is 5% of the amount of tax due for each month or fraction thereof, with a maximum penalty of 25%. If no tax would have been due at the time the return was to have been filed, there is no penalty.

What is the penalty for, 'Failure to Pay' any or all of the tax due when the return is filed?

The, 'Failure to Pay' penalty is added to the, 'Failure to File' penalty, and equals ½% of the amount of the delinquency for each month that the tax remains unpaid up to a maximum of 25%. In addition, bear in mind that all back taxes also accrue interest at a variable statutory rate until paid.

If an Installment Agreement is entered into prior to the taxpayer receiving a Notice of Intent to Levy (CP Notice 504), the, 'Failure to File' penalty is reduced to ¼% of the amount of the delinquency for each month that the tax remains unpaid up to a maximum of 25%.

Can I get IRS to waive or abate either, 'Failure to Pay,' or, 'Failure to File' penalties?

Yes, IRS can waive or abate penalties for, 'Failure to File', and, 'Failure to Pay' if the facts and circumstances establish, 'reasonable cause' for doing so, and each case will be judged on its own merits.

Relevant issues could include such things as:

• What happened and when did it happen?

• How did the circumstances prevent you from complying with the law?

• How did you handle the remainder of your affairs during this period?

• Did you use ordinary care and prudence in the conduct of your business affairs?

Specific reasons that IRS may find to constitute, 'reasonable cause' include:

• Death, injury, or illness;

• Ignorance of the law;

• Incorrect advise;

• An unavoidable calamity such as fire, flood, or theft;

• Inability to obtain necessary records.

If your request is denied, you have the right to request an independent review of your case, and could ultimately go through appeals to the United States District Court by paying a portion of the penalty and suing for a refund