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Most people who fail to file one or more income tax returns have been influenced
by emotionally stressful events or conditions. Divorce, financial hardship,
catastrophic illness or alcoholism are typical catalysts. The domino effect of
failing to file is the fear of financial consequences, along with the penalties
and interest that will be assessed. Ultimately the threat of criminal
prosecution and fines is enough motivation to bring a wayward taxpayer back into
the system. Although most delinquent taxpayers have access to information about preparing a
tax return via the IRS web site,
(www.irs.gov), they do not have the necessary
forms or the knowledge of tax laws that apply. Any taxpayer can print copies of
the last ten years of his tax returns from the web site, but a non-filer would
not want to alert the IRS by doing so and subsequently risk enforced collection
or criminal prosecution.
Alternative and safer methods of obtaining the information return data are by
contacting the Disclosure Office which will not alert other arms of the IRS) or
the Social Security Administration (which can provide the same W-2 and 1099
forms).
For non-filers, the risk of using an accountant to help prepare a tax return is
that there is no accountant-taxpayer privilege and therefore nothing to protect
them from discovery by the IRS. Any admission, however slight, can be used
against non-filers. The best way around this problem is to retain an attorney,
who in turn will hire an accountant and place him under attorney-client
privilege. By using this procedure, the non-filer's accountant cannot testify
as a witness against him.
Because there is a six-year limitation period for criminal prosecution,
non-filers should begin with the earliest date and work forward. In the event
the IRS has begun to file Substitute for Returns (SFR), a non-filer should begin
with the first SFR received. It is also better, at this point, to prepare and
file a return immediately rather than respond to IRS questionnaires or
correspondence seeking information. This course of action prevents the IRS from
using taxpayer correspondence in a criminal prosecution. Again, once an SFR has
been received, it's important to file the return within the specified time
period. Any delay can trigger additional consequences.
One caveat: An SFR is ultimately detrimental to the non-filer, because the IRS
can choose the highest filing status–single, for example, which effectively
deprives the non-filer of relevant exemptions or credits. More importantly,
although an SFR is a valid return for collection purposes, it is not subject to
the ten-year statute of limitations. Once the return is filed, the taxpayer
faces an unlimited period of tax liability.
On the subject of tax refunds, be aware that taxpayers are only eligible within
the preceding three tax years. After April 15 of the third year, a taxpayer's
refund is voluntarily waived to the government. Within the three-year period,
refunds that exceed $300 can be held under the non-filer refund hold program and
applied against delinquent returns. The rationale behind this procedure is that
it will induce non-filers back into compliance; it will also offset any
liability owed on the delinquent return. Alternatively, a non-filer may notify
the IRS that he did not meet the filing requirements; that is, his earnings fell
below the income threshold and therefore he was not required to file a tax
return. The IRS will then try to release the refund. |
