I am an inveterate procrastinator. For most of my adult life I avoided any serious consequences from late filing my taxes by not actually owing any taxes — in most years I received refunds.
Then, a terrible thing happened. In 2019, I had non-compensation income on which I owed a considerable amount of tax. I couldn’t figure out what I owed, didn’t go to an accountant, and basically just blew it.
I made up a rough estimate and tried to pay that online at the last possible moment but was too late. It was credited to my 2020 taxes. Since then, I stuck my head in the sand and filed nothing.
Clearly, this will eventually bite me in the behind. How do I find an accountant who can unravel the mess I’ve made?
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In Knots About Not FilingDear In Knots,
You’re right, you have a problem. That’s the bad news.
The good news is you have the power to address the problem and get on with your life. It’s the start of a New Year, and now’s as good a time as any.
As you noted, until this income landed in your finances, Internal Revenue Service rules have let you get around to filing your income-tax return past deadline without “serious consequences.”
That’s because the IRS will not hit taxpayers with a failure-to-file penalty if they file late and are owed a refund. The catch is after three years, the refund reverts back to the Treasury Department. Last year, more than one million taxpayers were in danger of losing a chance to claim their 2018 refund because they hadn’t submitted an income-tax return.
It’s a different story when you owe tax and the deadline comes and goes. There’s the tax bill, plus failure to file and failure to pay penalties, plus interest. You’re clearly aware of this, hence the reference to getting bitten sooner or later.
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I talked to Nina Olson, the former National Taxpayer Advocate at the IRS who is now the executive director of the Center for Taxpayer Rights. In her time at the agency and, before that, preparing taxes herself, Olson has heard stories like yours. One person asked Olson for help with 15 years of unfiled tax returns.
Last year, more than one million taxpayers were in danger of losing a chance to claim their 2018 refund because they hadn’t submitted an income-tax return.
“This happens. People take the ostrich approach,” she said. It often starts with a snag or a missed return on one year, she said. Then when it’s time to file next year, the person holds off, worried that the IRS will start asking questions they are not ready to answer or demand payment they are not ready to pay. “Then it leads to not filing for multiple years. It complicates your life. It complicates everybody’s life,” she said.
Olson’s advises seeking out a tax attorney, accountant or enrolled agent to help. People in these roles can prepare a tax return, represent the taxpayer if any audit follows and also represent the taxpayer in any potential appeals in front the IRS or collection issues to pay the bill, she noted.
You could handle appeals and collection issues with the IRS yourself, Olson said. But consider the time cost. “You want this matter closed quickly. You don’t want to spend the rest of your life in a conversation with the IRS,” she said.
States have professional organizations where you may be able to find certified public accountants or enrolled agents. Likewise, there’s the National Association of Enrolled Agents, which has state affiliates. State bar associations may also be a good resource for tax lawyers. And, of course, there’s always word of mouth from people you know and trust.
Tax season is approaching, so begin your search now, Olson advised. (The IRS hasn’t announced a 2023 start date yet. But Jan. 24 marked the start of last year’s filing season.) If you start looking next month “you’ll have to wait a while. Anyone preparing returns is deluged,” she said.
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No one is suggesting the job will be done by the start of tax season. But at least you will be on a person’s client list.
Once identifying someone, some questions include when the person thinks they’ll have it done. Also, how will they charge? By the hour? By the form? A flat rate? Another good question for a knotty scenario is whether they have professional liability coverage, Olson said.
It’s tough to guess what their fee will cost you. But remember, you are paying someone to help you get right with the taxman and also reclaim some peace of mind.
When it’s time to pay up, remember you have options. The IRS can work out installment agreements and there’s the more involved “offer in compromise,” where the IRS may decide to let a taxpayer settle a tax bill for less than the full amount owed. Without getting deep into the technicals or knowing the specifics of your scenario, there’s also the chance at some penalty relief through the abatement process.
During fiscal year 2021, the IRS assessed more than 17 million failure-to-pay penalties on individual and estate and trust returns for $8 billion. The tax collection agency took away $900 million of those penalties via abatement, its databook showed.
These are ways to address the issue. But it starts with filing. Consider the alternative.
Generally, there is going to be three years from the time the return is filed for the IRS to assess extra tax owed, explained Michael Kramarz, director of federal tax resolution at Kaufman Rossin, an accounting and advisory firm with offices throughout the country and abroad.
If there’s a substantial omission of income, Kramarz noted the IRS has six years to assess extra tax. Collection rules generally kick in after assessment. The clock on collections can start at various places in the process, but it runs for 10 years.
There’s no statute of limitations that prevents the IRS from looking into or inquiring about unfiled returns from past years, Kramarz noted. “The clock does not start to run until you file your return,” he said.
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Remember the person who came to Olson with 15 years of unfiled taxes? What finally prompted them to face the music was the need to complete a financial-aid application for their college-bound child. The requested paperwork included tax returns, Olson explained.
Put aside worries about the taxman. There’s going to be financial events in your life that will necessitate a tax return. Maybe it’s a financial-aid application for your own child, a mortgage application or something else. Finally filing these returns will let you move on with your life.
