Arizona

IRS Debt Blog

480-507-5985Free Phone Consultation With Attorney

By Michael S. Anderson of Anderson Tax Law logo for Arizona tax attorney Michael S. Anderson P.C.
  • Late Tax Returns? Six Big Reasons You Should Get them Prepared

    time fliesTime flies when your having fun. As you get older, it flies by whether you are having fun or not. For people with multiple years of late tax returns, time flies whether they are old or not.

    One tax return is missed because a IRS tax debt is lurking at the other end, and all of a sudden four years have gone by and 5 tax returns are late. Oh, and by the way, your 10 year old is now driving.

    If you have several years of unfiled tax returns there are a number of reasons why you should straighten your tie, take a deep breath, and get the returns done.

    JAIL

    Most non-filers don’t go to jail. However, one missing return can be considered a crime. The IRS goes after the high rollers and “Moms and Pops” alike.

    It just isn’t worth the risk to wait. Especially when there is a likely solution, even if long term, to deal with the debt.

    PENALTY

    The penalty the IRS tacks onto the debt for failing to file can be as high as 25%. After a few years, 25% with interest can amount to alot of dough. Just filing the return on time prevents this from happening. The return needs to be filed anyway, so why wait until it’s late and incur the penalty.

    LOSE THE REFUND

    There is a little known and very strange rule the IRS has. If you file a tax return more than three years after it was originally due…you lose your refund. They get to keep it and no, there really isn’t any amount of begging that will get it back.

    The IRS “collects” millions each year because people who are entitled to a refund don’t file on time.

    Not filing because you will owe? I can see that line of reasoning, it has a certain logic to it, but not filing when you will get a refund? Not logical at all.

    AUDIT

    Don’t you think it makes sense that a late filed return may get a bit more attention? Especially if an IRS Revenue Officer is looking at the return with her own eyes as she determines whether to stop your levy or not.

    SUBSTITUTE RETURNS

    The IRS has the authority to use what has been reported to them, stick a standard deduction to it and call it a return. It doesn’t even need your signature.

    TO REPEAT for those guys staring at their I-Phones when I said that…

    The IRS gets to do the returns for you and they don’t use any basis amounts for stock sales, gambling winnings or home sales. They don’t deduct your business expenses from schedule C. They don’t include the emergency room cost of your 8 year old’s broken arm.

    They don’t need your signature.

    This is a very common problem. A problem that usually results in large, overstated debts that are used to beat you over the head…OR more commonly to levy accounts and garnish wages and keep you up at night.

    There are other large problems associated with these types of returns i.e substitute returns.

    If the IRS files this substitute return, you do not have a “right” to challenge it if 90 days pass after it’s assessment.

    Oh sure, you can ask them to replace it with the correct return, and they probably will…but they don’t have to. Not nice.

    The other…if you ever need to discharge this particular debt in bankruptcy, probably isn’t going to happen, at least not in Arizona.

    IRS COLLECTION

    Most people can’t formally stop IRS collection without filing a bankruptcy case… unless their returns are filed. No, I didn’t say most people can’t file for bankruptcy unless their returns are filed, although that is arguably correct.

    I said…it is a mistake to wait until your bank account is frozen to do six tax returns. You need to be “compliant” to stop the IRS collection machine, in most cases.

    Conclusion and a few more items.

    Having said all of the above…there are reasons you may want to:

    1. Consider speaking to an Arizona Tax Attorney before preparing the returns OR

    2. Have the Tax Returns prepared but don’t file them until you have spoken to an Arizona Tax Lawyer.

    For some people it may be very important to create some attorney client privilege related to the return work. So even if you are using a CPA or tax preparer, you may want to involve the Attorney first.

    For some other people, it will be important to know which years may not need to be filed and whether certain returns need to be filed at specific times.