Do You Have Unfiled Income Tax Returns or Outstanding Tax Liens? Will Your Tax Return be Audited by the IRS? Andy Powers Can Help!
If you have not filed income tax returns for prior years, or have notices of tax due, use the Contact Us link on this website so we can help you now before it is too late! The penalty for not filing your tax return can include up to one year in prison.
If you have unfiled tax returns or pending tax assessments or tax liens, Andy Powers can help get you a fresh start by voluntarily filing these unfiled tax returns or assisting in reaching a settlement of taxes owed, either preventing a tax lien or obtaining a release if there is one. But the longer you wait, the more it will cost you. This is because the IRS usually will only issue you a tax refund if a tax return is filed within three (3) years of the due date of the return, and usually the statute of limitations will expire on April 15 for the third previous year.
Now even though the IRS normally has three years from the due date of the return to examine the return or issue a tax deficiency notice, this does not apply if a tax return has not been filed. Further, if the IRS owes you a refund for a year that is beyond the three year statute of limitations, it WILL NOT BE ISSUED. I have assisted several individuals who were notified that they had not filed tax returns for many years. Although I would often find that a tax overpayment existed for an assessment year which mitigated the tax deficiency, the IRS could not refund the overpayment or carry it forward after the 3 year statute of limitations had expired. To make things worst still, often it was found that additional taxes were due for years falling within the 3 year period, and this tax was due and payable even though there was an uncollectable refund from prior years that could have been received had the tax returns been filed on time.
However where we had been retained in time to not only prove that a tax deficiency did not exist for the year of notice, but we were able to prepare tax returns where refunds were issued to the client, the tax deficiency was eliminated and a refund was received.
SOME HISTORY of IRS AUDITS
Back “in the day” when I first began preparing tax returns professionally the IRS had only begun to utilize computers to track tax returns and most income tax returns were prepared by hand and mailed to the IRS. Each year the IRS would mail individuals a booklet with forms and an identification label to use containing your name, address, social security number and some unrecognizable codes. My coworker at the time would never use these labels as he believed that they contained information that marked (red flagged) the return for audit. Although I have no idea if this were true, the IRS now has ways to do just that.
Over the past decade the IRS has dramatically changed the way U.S. taxpayers report their income and pay their taxes. A decade ago the IRS began to “strongly encourage” electronic filing by individuals and businesses. Tax Practitioners were encouraged to “partner” with the IRS to increase the number of electronically filed returns by participating in the “efile Program”. Then the IRS announced that it was developing a new computer based tax examination system and over a three year period it would be conducting numerous “silent audits” of tax returns testing their new software. Taxpayers who had their tax returns “examined” by the new system were usually never notified that their tax return was being examined. If the computer “red flagged” the return, it would then be sent to an IRS examiner to review the return. If discrepancies were found they were noted and used to increase the efficiency of the audit program, and to red flag tax returns for future audits. This became known as the “silent audit process” and one of the things that were integrated into the computer program was a verification of items reported on the tax return against third party information reports. At the same time the IRS began increasing their third party reporting requirements and penalties for non compliance.
Once the compliance and audit program was operational, the IRS began to mandate electronic filing of tax returns by tax professionals and certain businesses. Once the tax return was electronically filed it automatically went through a series of cross verifications and tests. Simultaneously the number of IRS auditors were reduced, primarily through attrition, as new agents were not hired to replace day to day personnel who’s jobs were replaced by the new computer system. No longer did tax payers receive a notice requesting additional information preceding a notice of proposed tax adjustment. If the information cross checked from third party information did not match the information reported on the tax return, a notice of tax adjustment and additional tax due was automatically mailed to the taxpayer. This process significantly improved voluntary tax compliance and collection; however the problem arouse when information contained on third party notices was inaccurate. Unlike our criminal justice system where people are presumed to be innocent until proven guilty, when it comes to income taxes and the IRS, the burden of proof is on the taxpayer, not the IRS. Often either a notice was overlooked by the taxpayer, given to an accountant or tax preparer to handle who did not respond in a timely manner or the notice may have been sent to an old address where the USPS forwarding instructions had expired. This usually resulted in a final assessment and notice of unpaid taxes, often leading to a tax levy or lien.
The period of silent audits has long since past and the IRS computer software is operating in full force and agents are no longer required to calculate notices of additional tax due where there exist discrepancies between the tax return and third party notices. Unfortunately by removing the human factor, this sometimes results in inaccurate notices of tax deficiency that if not responded to will lead to notices of tax liens and levy.
Presently some states have reduced their tax compliance workforce and not have mandated electronic filing of tax returns by all taxpayers, and have implemented penalties for those who manually file returns using paper and ink. Although most tax professionals are now mandated to use computer software to electronically file client’s tax returns, is it only a matter of time before all federal returns are required to be filed electronically?
The face of voluntary tax compliance has changed dramatically in the 40 years since I began to prepare income tax returns for the public, and the computer age is sure to bring new changes. Unfortunately during times of economic recession, tax stimulus legislation which is intended to help people is often abused and results in increased tax returns being examined. Additionally, the government needs to increase is revenue inflow and in so doing, seeks to eliminate perceived tax gaps and steps up tax compliance enforcement. Unfortunately, often these new computer generated notices are incorrect as they do not factor in all the related information, and if a tax return is not filed or if information is intentionally or unintentionally not included, there is no way to prevent these notices which are often paid without question, and often lead to examination of other tax returns for which the statute of limitations has not expired.
What if you owe back taxes but can afford to pay it right now? There are different options available ranging from hardship deferrals, offers in compromise settlements and installment payment plans that can be arranged.
So if you have not been filing your income tax returns or have notices of tax deficiencies or liens, don’t wait until it is too late. Contact us today so we can help you get a fresh start.