Failure To File

[tonia2021]

I have a client (I mentioned him earlier) who hasn't filed a tax return since 1997. I have all of the information to complete the returns (1998 - 2006) and the taxpayer owes for all years except one. The taxpayers will owe approximately $21000; however penalties and interest will double that and results in the taxpayer owing $42000.

Would you file all the returns, or only the current and prior 6?

Is there any circumstance that would qualify for the taxpayer for penalty abatement?

Would you send in the tax returns with the balance due that shows on the 1040, or would you send in more to help cover the interest and penalties?

Thanks for your help!

[taxmandan]

I wouldn't file anything,

I would prepare all returns for all years to bring the client into compliance, charge a hefty fee for each year (at least half up front), collect fees and give the returns to the client with instructions on how to sign and mail them to the taxing authorities.

[erchess]

You don't say how much money these people have now.

We have all seen those ads on TV where people claim to settle tax debt "for pennies on the dollar". The IRS will accept an Offer in Compromise if the taxpayer truly cannot pay the debt. For example, I once talked to a woman who had been living on social security and a pension too small for her to be required to file when she cashed in the pension to pay medical bills of an adopted minor child. (The hospital would have waived the fee had she let a Social Worker know of the need but she was not aware of that.) When the IRS dunned her for the tax on I want to say a hundred thousand dollars of income in one year, my superiors were able to get an OIC that forgave the entire debt because fro the service's point of view receiving ten or twenty dollars a month for the rest of the lady's life would not have been cost effective and asking for more would have been unconscionable.

The IRS will also accept an Offer In Compromise if you can convince them that if the case were litigated they would have no more than an even chance of of getting the court to agree that the taxpayer owed the full amount of tax, interest, and penalties. From OP it doesn't seem like this provision will apply.

Failing those two provisions, I am aware of only three things your client could do.

If they have the resources, the cheap thing to do is to pay it all now by check or money order.

If they don't have the resources to do that, the next cheapest thing to do would be to borrow the necessary funds from a reputable lender and pay up now.

If they don't have the credit to do that, they can set up an installment agreement with the IRS. The agreement will be accepted automatically if it calls for the debt to be paid in sixty months. However, longer periods are available if the client truly cannot pay in that time period. They will need to make sure to stay current on their taxes during the period of the installment agreement. If they file a return during this period showing that they owe, they will need to pay the amount owed in full without being late on the installment payment for that month. If they file for a refund during the installment period the refund will be applied to their debt, lessening their final payment or perhaps eliminating one or more payments at the end.

I hope this helps.