Serial Tax Return Non-filers.
Every year, thousands of individuals fail to file their Federal and State Income Tax returns despite being required to do so. I refer to these individuals as “serial non-filers,” since many of these individuals are repeat offenders. These serial non-filers offer one excuse or another as to why they have not filed their taxes.
The first sign of trouble is when the IRS sends a letter requesting that the Individual file his or her outstanding return. The usual response is to ignore this letter. The Taxpayer may next receive an assessment of tax for the years in question based upon income reported to the IRS from a third party such as an employer, or brokerage firm, bank or other sources from which the IRS has filed a substitute return. All assumptions in the substitute return are resolved against the taxpayer and legitimate deductions such as home mortgage interest, taxes, etc. are ignored. In addition, the sale of capital assets is treated as ordinary income and the IRS ignores the taxpayer’s basis in the capital asset. Consequently, the tax liability is almost always overstated.
The taxpayer is now concerned but continues to ignore the notice of tax due and simply throws the notice in the trash. The serial non-filer is then shocked, when he or she goes to the ATM on a late Friday afternoon, and attempts to withdraw money from the ATM, only to find that all of his or her funds have been frozen based upon a Notice of Levy placed by the IRS on the individual’s accounts.
The non-filer eventually receives a notice of tax lien, which has been filed against their property. He/ She receives Notice from the IRS but simply throws it in the trash without first reading it. The taxpayer eventually learns of the lien from his mortgage broker who is working on a refinance of the taxpayer’s mortgage.
The taxpayer also recently interviewed for a dream job as a chief financial officer of a large construction company and the company makes an offer of employment, subject to a background and credit check. The credit report comes back and shows the outstanding tax liens. Needless to say, the offer is rescinded.
Following the denial phase, the serial non-filer realizes he/ she has a serious problem, but decides he/ she is going to handle the matter himself/ herself. He/ she goes on the IRS website and becomes totally confused. He/she does nothing for another three months.
What’s wrong with this picture?
The serial non-filer could have avoided these problems by filing his or her returns and paying his or her tax. The situation looks tough but there is hope. The serial non-filer can file his/ her delinquent returns, which reflect the actual tax due, which in most cases is substantially less than the amount assessed by the IRS. Remember when the IRS files a substitute return, it is based solely upon gross revenues reported by third parties. The serial non-filer’s return will certainly include deductions which the IRS does not consider.
The serial non-filer finally decides to contact my office. We prepare and file the delinquent returns; the outstanding balance is approximately $25,000.00, about $150,000 less than the amount assessed by the IRS. We also negotiate an installment agreement, where the serial non-filer agrees to make regular payments via automatic deductions from his bank account. The serial non-filer received a small settlement from a minor fender bender and initially pays $5,000 down. He/ she then makes five installment payments. Thereafter, the serial non-filer engages my office to file necessary paper work with the IRS upon which the Federal Tax Lien is withdrawn. The serial non-filer pays off the balance to the IRS within 24 months and is able to refinance his mortgage. Unfortunately, the job opportunity is forever lost.
Tax resolution is extremely technical and therefore requires the assistance of an experienced attorney, who understands tax administration, the U.S. Tax laws and taxpayer’s options. Every case can be resolved. However, each case depends upon the amount owed, whether the taxpayer has had previous problems with the IRS, and of course, the taxpayer’s ability to pay.