There is some good news and bad news
here
There is some good news and bad news here. The good news is that
you are not alone. You are in the company of thousands of Americans
who have, for whatever reason, failed to file returns for multiple years. The
IRS refers to these taxpayers as chronic non-filers. The
IRS knows that if you fail to file for the past few years, you are more
likely not to file in the future, fearing retribution from an angry horde
of revenue officers. You need not worry. The IRS wants you
to file the past returns and to timely file your future returns. No
one is angry and no one is pounding on your door looking to take your
house away from you.
Step One –
Figure out what years you are missing, those years for which you have
not filed. A simple call to the IRS will get you the answer. Most
people are afraid of calling the IRS for fear that it will “wake
them up” and they will now know you have not filed. Believe
me, they already know. Call 1 800-829-1040. You will have
to wait awhile, but hold on, the end result will be worth it. When
the operator comes on the line let them know that you need to find out
what years are open in your account. You will need to give them
basic identification data, but once they have adequately identified you
they will answer your question - you have not filed for 2002 through
2006.
Step Two
In order to complete the tax returns you will have to reconstruct your
income and expenses for those years. The IRS can help you with
some of the information you will need if you ask. When talking
to the IRS representative ask her or him to mail (or fax if you have
a fax machine nearby) to you the “wage and income transcripts” for
the years that you have not filed. Caution – if you go back
further than seven years, they will not be able to get you information
back that far as it has been removed from the active system. They
will, however, let you know how to obtain that information.
Step Three
Now that you have your income information, you need to assemble your
deductions. There is some good news here. The biggest
decision on the tax return is whether to use the standard deduction or
whether to itemize. For most taxpayers, that decision will hinge
upon whether you own your personal residence or not. If you own
your house then the mortgage interest that you paid will be a tax deduction
and will likely lead to your itemizing your deductions. Fortunately
the amount of interest that you paid in that year will be reflected in
the wage and income statement you received from the IRS. So really,
unless you have some complications, the vast majority of the information
you will need to file will be in the transcripts you receive from the
IRS. Of course you will also need information (name, date of birth,
social security number) about your spouse and children, if any.
Step Four
Once you have the wage and income transcripts you should prepare to either
do the tax returns yourself or hire a local accountant to do so. If
you wish to do them yourself, you can download old forms from the IRS
website and fill them in by hand, or you can go to websites of commercial
tax preparation software, like Turbo Tax, and purchase their software
for only the years that you need.
Step Five
If you choose to have an accountant (does not need to be a CPA) do your
returns then gather the transcripts and any other pertinent information
and make an appointment. If you choose to do it yourself, then set aside
one evening to do nothing but tax returns. This is tough, but it
needs to be done. If you have no experience in preparing tax returns
then ask a knowledgeable friend to help. Once you have done two
of the years you will catch on and the remaining years will not be so
difficult.
Believe it or not, you can actually call the IRS for help! Just
dial the same number as above and ask them for assistance. You
will get it and it will be fair and balanced.
Step Six
Once the forms are prepared make sure you sign them and prepare them
for mailing to the IRS. If you need the mailing address you should
refer to the IRS website or call. If you owe money on any of the
returns you should try to pay it when you file the return. It
is vital, though, that you DO NOT DELAY mailing the return if you do
not have the money to pay the amount owed. Either pay what you
can or, if you can pay nothing, simply send in the return.
Step Seven
In a few weeks or months the IRS will send you a letter telling you that
you filed these returns late and that you owe penalties and maybe some
interest. In an ideal world you would pay these amounts and move
on with your life. However, if you cannot afford to pay the penalties
and interest or if you could not pay the original debt on the tax return,
you will have to make arrangements to pay over time – an installment
agreement. In some cases, the amount owed for all of the years
(including penalties and interest) is far beyond your ability to pay
the full amount. For example, if you owe $75,000 and your salary
is $37,500 and you have two children, a mortgage and medical expenses,
you may want to consider making an offer in compromise to the IRS for
an amount less than what you owe.
CAUTION: If you are SERIOUSLY in debt and the amount far outweighs
your ability to pay, you will be tempted to call one of those tax relief
companies that advertise on TV or on the internet. Do not do so.
If you need professional help, go to a tax accountant or tax attorney
licensed to practice in your state. They will have the experience
to guide you and the cost will be far less. Also, you will have
the state bar or accountancy board to complain to if you are not happy
with their services.
If you have followed all of the steps above, your tax filings are now
current and you are either fully paid up, making monthly payments or are trying
to negotiate a lower amount to pay. Either way, you can now sleep at
night and stop worrying about what might happen. You are in control and the
matter is on its way to resolution. It isn’t easy, but in the
end you will be glad you did it. Good luck.
