Unfiled Tax Returns are a serious problem.
As a Dual Licensed CPA and Attorney, we provide the perfect match for this problem. First, as an attorney, you obtain the Attorney – Client Privilege.
Tax Evasion vs Negligence
The greatest fear of most taxpayers that have not filed tax returns is the prospect of “tax evasion.” A taxpayer must have had a criminal intent to defraud the government to be prosecuted for tax evasion as opposed to just negligence, procrastination, stupidity, etc. At worst, non-filing is a misdemeanor. The primary objective of the IRS is to bring delinquent taxpayers into compliance and back into the tax system. However, if you have not filed tax returns for more than six years (or four quarters of payroll tax returns), you may want to contact a professional knowledgeable in tax delinquency for advice. Most CPAs and Enrolled Agents, although knowledgeable in tax return preparation, are NOT experienced in handling significant tax delinquency matters.
Substitute for Returns
If the IRS agent says that you owe taxes for years that you know you have not filed, the IRS has probably made estimated tax assessments against you. The IRS calls these estimated assessments Substitutes for Returns or SFRs. These are legal debts and collectible by the IRS, but they can be corrected.
In relation to the SFRs, these assessments/liabilities are rarely accurate and, as previously stated, can be corrected.
Attorney Client Privilege
The willful failure to file a Unites States Tax Return is a misdemeanor. Individuals with unfiled tax returns often begin seeking help by contacting their accountant. Federal and state laws recognize a limited accountant-client privilege concerning confidential communications. However, the privilege or confidentiality rules involving discussions between a client and their accountant do not extend to criminal cases.
Only the attorney-client privilege survives a state or federal criminal tax investigation or prosecution. This privilege is often a critical component in representing and defending a taxpayer with unfiled returns or unpaid (back taxes). If you have unfiled tax returns and need help, contact us.
He has represented many taxpayers to successful conclusion. He handles the entire matter:
- We act as your power of attorney before the Internal Revenue Service, IRS Form 2848,
- We obtain copies of your lost tax documents such as W-2’s, 1099’s and other payment advices that were provided to the IRS,
- We formulate an action plan to prepare your books and a plan to keep you compliant going forward, and
- We prepare your delinquent tax returns for you.
The preparation of prior years of tax returns typically require enormous work, preparation, and care. The delay of tax return preparation has serious consequences if left unchecked. It is important to seize the moment as you read this and contact us (303) 626-7000.
If you have received IRS Letter 1058, IRS Letter 729, IRS Form 12153, or CP 59 call us right away.
We have observed over the years that the delay of filing tax returns becomes habitual then deep fear takes hold further paralyzing the taxpayer. We have observed many taxpayers tackle this problem. Taxpayers who overcome this problem are empowered and become even more productive.
It has been our experience that many taxpayers with unfiled tax returns were or are self employed. Overwhelmed by the demands of small business, the taxpayer delays tax compliance. Years pass, and an enormous tax problem has mounted. A mountain of unfiled taxes consisting of several years piles up fast with a potentially large liability for back taxes.
The most common unfiled tax return is the 1040 tax return. Unfiled S Corporation returns, tax form 1120s, and partnership returns, tax form 1065, carry steep penalties. If you have unpaid taxes click this text to go to the unpaid taxes page.
There is hope!
Organize your records by year. Put the IRS notices together and make an appointment with us.
If you have many years of unfiled tax returns it is important to set in place a solid strategy to handle the matter. Your strategy will typically involve Voluntary Disclosure. Voluntary Disclosure minimizes taxpayer exposure to criminal prosecution.
The taxpayer, among other things, must file tax returns for appropriate years and be truthful in the filings.
We specialize in Voluntary Disclosure.
Unfiled Tax Returns Statutes of limitations
Criminal. 6 years. Charges can be brought within 6 years of a tax return’s due date.
Civil. The statute of limitations does not run on unfiled tax returns as far as civil liability.
It is best to prepare and file your delinquent returns before the IRS requests them. If the IRS has sent you notices requesting delinquent returns it is important to assess the matter with a competent tax professional.
Unfiled 941 – Payroll Taxes
If your unfiled tax returns are Quarterly Payroll Tax returns, Form 941, for employee wages, the IRS also has the authority to prepare and assess payroll tax liabilities in the same manner as substitute tax returns. In this situation the IRS uses previously filed Forms 941 to estimate wages paid and resulting payroll taxes. The IRS can also do this as the result of a personal audit if they determine that you intentionally misclassified workers as independent contractors instead of as employees, and did not withhold taxes from paychecks.
Payroll taxes are considered by the IRS to be the most serious taxes that they collect and are aggressively pursued. If you have not paid payroll taxes for more than one quarter, cannot pay them within 90 days and are currently incurring additional payroll tax liabilities, you have a serious cash flow problem and need to take immediate corrective action.
You must realize that payroll tax funds do not belong to the business. They are your employees’ money and the IRS moves aggressively to collect those funds. In fact, if you are a corporation, the IRS can pierce the corporate veil and assess the withheld portion of the payroll taxes against the individual(s) in the corporation who were responsible for “accounting, collecting and paying over” the payroll taxes. This is referred to as the Trust Fund Recovery Penalty (TFRP).
Unfiled Form 940 is another problem that tends to mushroom.
Form 940 is the form used by an employer to pay Federal Unemployment Tax. An offset against the Federal Unemployment Tax is given if the employer pays State Unemployment Tax.
When a 940 is timely filed, the IRS allows the taxpayer to check the box indicating that State unemployment tax has been paid. However, if a 940 is unfiled, employer must prove to the IRS that state unemployment tax has been paid by way of a certification. If this is not proven the federal unemployment tax increases about twenty-fold.
Penalties and Interest
Penalties and interest on late-filed tax returns and on unpaid taxes are significant. The Late Filing Penalty can be 25% of the unpaid balance, before credits. There are additional penalties for failing to make timely and proper Quarterly Estimated Tax Payments, failing to make timely and proper Federal Tax Deposits of payroll taxes, monthly Late Payment penalties for not paying on time, and many others. No one in the IRS can waive or abate penalties unless a taxpayer establishes “reasonable cause.” Reasonable cause is a very broad term, but generally involves disease, death, flood, fire, earthquake, etc. In addition, IRS or professional misrepresentation or erroneous advice can be reasonable cause. However, ALL reasonable cause claims must be proven with credible evidence. Interest rates on unpaid taxes change every six months and currently range from 3% to 4% compounded daily. Interest on past due taxes cannot be waived or abated by anyone in the IRS unless it can be proven that the IRS “failed to take a ministerial act.”
Philip Falco, CPA, Juris Doctor – honors