Taxpayers who fail to timely file tax returns face the risk of severe penalties, accrual of interest, and potential criminal prosecution.
Non-filers also face the risk of the IRS preparing a tax return for them known as a “substitute for return.” A substitute for return is generated by information reported to the IRS from third parties, such as a Form W-2, Form 1099-B or Form 1099-MISC. If a substitute for return is generated, a taxpayer may not obtain the benefit of available deductions and credits or basis in the sale of securities. As a result, owed balances could far exceed the proper tax due, if any. Furthermore, if a liability is owed from a substitute for return, the IRS may commence a collection action. This can include a levy on the taxpayer’s wages or bank accounts, or the filing of a Notice of Federal Tax Lien.
Subsequently, tax litigation will not begin until after the IRS sends the taxpayer a letter known as a “notice of deficiency.” Once the taxpayer receives the notice, he/she has 90 days from the date of the notice to file a petition with the Tax Court. If the taxpayer does nothing, the IRS will proceed with its proposed assessment.
We assist taxpayers with delinquent tax returns from years past in an effort to clear up their tax problems. Under most circumstances, it is more favorable to come forward voluntarily than to be discovered by the tax authorities. By coming forward, taxpayers may be eligible for relief under various IRS provisions, including the Voluntary Disclosure Program.
Contact us to discuss options on how non-filers can become current with the IRS, and lessen the risk of criminal investigation and collection action from a substitute for returns.