Unfiled Returns, Back Taxes and IRS Tax Problems

What NOT to do if you can’t pay your unpaid taxes (Delinquent returns)

At Tax Negotiators we remember receiving a call one day a few years ago from a nervous chiropractor in another state. During our conversation he confided that his IRS tax problems had started several years earlier. He had been forced to defend himself in a merit-less Lawsuit and for technical reasons his insurance company was not standing behind him.

Although his innocence was later proven in court his legal costs were gigantic.

He had refinanced his home to pay his legal bills. Unfortunately, he had not paid over the withholding IRS taxes on his two employees and he did not pay his income tax for the two earlier years.

He was borrowing form the IRS to pay his legal bills.

His financial problems worsened as his client base eroded and two years later he filed for bankruptcy.

As he had unfiled tax returns for those two earlier years he could not bankrupt his income taxes and withheld payroll taxes can never be discharged in bankruptcy.

My caller had becomes so frightened he had stopped filing all tax returns and was not making any tax payments of any sort.

He ignored the notices the IRS was sending to him regarding his unfilled tax returns. He would not open the envelopes and so he was taken by surprise one day when the Service levied on his bank account.

With no cash on hand and his insurance receivables collecting slowly, his mortgage went unpaid, as did his other bills. To make matters worse a Revenue Officer arrived at his office the week before to demand immediate payment.

Our new client gave us a power of attorney to represent him regarding his unfiled tax returns and unfiled taxes and with that authorization we called the IRS Officer and requested (and got) some time to investigate and to devise a solution for his IRS tax problems if one was possible.

Among the things we learned was that our client was paying very high interest rates on the 3 mortgages he had on his house.

It was possible he would have to sell his house and move his family to a less desirable neighborhood in order to meet the demands of the Revenue Officer.

He was humiliated, he was fearful and he felt trapped.

We had contacts in the mortgage industry and within two days we had put him in touch with a lender who was willing to work with him to consolidate his three loans into one.

The refinancing cut the monthly debt service in half. He now had no available equity in any assets and his income was so low he now qualified for an IRS Offer in Compromise.

In the IRS offer his back taxes debt that was over $125,000 was settled for $20,000 (and to get that amount he borrowed from his mother).

He did not get a money judgment in his Lawsuit but he was exonerated of mal-practice. His case made local news and his practice began to recover.

He is current on all his taxes now and he has vowed to never fall behind again.

Here are the things you should not do if you have unfiled returns and cannot pay your taxes:

Do not get further behind on your IRS taxes with your current quarterly payments and estimates. Get current with your employment tax obligations. Do not borrow from the IRS to pay your employees.

And then do not delay in addressing the old IRS tax problems. File your tax returns as soon as you can and then start to deal with the IRS taxes themselves.

Here are the things that you can do if you cannot pay your back taxes:

First - Arrange to pay the IRS back taxes in installments, which can range up to 5 years to avoid IRS tax problems.

Second - Consider submitting an Offer in Compromise to the IRS regarding your back taxes if you have no saleable assets and low income.

Third - Get placed on Non Collectible status with IRS regarding your unfiled taxes. If you have lost your job the IRS may forego collection action until you are back at work.

Fourth - Consider Bankruptcy to avoid further IRS tax problems. If the tax filing due date for the tax return was more than 3 years ago, if the date the tax return was filed was more than 2 years ago and if the tax was assessed more than 240 days ago, it might be possible to bankrupt the income tax debt for that year. (Federal only, state bankruptcy laws may be slightly different.)

What should you do first?

Our answer is - Get help. Get the advice of a professional experienced in dealing with the IRS and State tax agencies.

Procedures regarding unfiled IRS tax returns and back taxes are complicated. You are mis-matched in your battle with the IRS as you do not know the rules. The Taxpayer Bill of Rights clearly states that the IRS employee you are dealing with regarding your unfiled returns or back taxes is obliged to inform you at all times of your rights.

Don't believe that will happen. For the simple reason that even the best intentioned agent (and there are many) is not trained in all areas of IRS tax procedure and the tax law and does not know what all the options open to you are.

If your tax obligation is substantial you will be wise to choose someone to represent you, someone who is well experienced and knowledgeable regarding your IRS tax problems.

We here at Tax Negotiators have the ability and the experience and we will be happy to help if we can.

Contact us for a free consultation on Unfiled Returns, Back Taxes and IRS Tax Problems.

We suggest you do not represent yourself.
The I.R.S. is your adversary in these matters.