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A family member is suffering from debilitating depression. he has not filed a tax return in 3 or 4 years and just can't deal with the IRS letters. He is sure there will be some taxes owed but just can't face getting all those records together. What should he do?
Would it cost a fortune to take a bag full of records to H&R Block and say "You fix it" or should I try to help him sort it all out? The last letter said they might put a lien on his property. Do those IRS services firms which advertise on TV help? Anybody had help with them? Can they really lower his tax bill?
I don't have a very high opinion of those firms who claim to be able to reduce your tax bill to almost nothing. If the truth be known, depending on the age of the liability and the specific circumstances, the taxpayer could get the same deal regardless of who they have representing them, or even if they represent themselves. At any rate, most of those firms are referring to existing liabilities. They are not in the business of filing tax returns. If your relative hasn't even filed the returns, they can't help you.
A lot depends on how complicated your relative's financial situation is. If he or she has only earned income, and routine deductions (mortgage interest, charitable deductions, property taxes, etc.), it's not hard to prepare the return yourself. Using a tax software application makes it really easy.
But if your relative's situation is more complicated (self-employed with business deductions, investment income and losses, etc.), your best bet is to gather all of their financial information and try to get it into some type of order, and then contact a CPA. I don't have much faith in H&R Block type filers. They generally use a tax preparation software, and just enter what you tell them to on each line of the return. You can do that yourself.
One more thing. If your relative can prove that he or she suffers from some type of illness that has prevented them from taking care of this situation, there is something called "financial disability" that can help mitigate any penalties for late filing. They will have to substantiate this with a doctor's certificate.
The important thing is to address this as quickly as possible. It's not going to go away.
The absolute worst thing a person can do regarding IRS issues is ignore them. The amount of taxes owed may be the least of your relative's problems; the penalties and interest are what makes the amount owed skyrocket.
These "pay pennies on the dollar" type businesses are something I've seen advertised but don't know how they work or if they can be successful.
I think this person should contact the IRS directly and plead for mercy. They will work with you and you can make a payment arrangement with them. I believe-- not positive-- that interest and penalties still accrue while you are paying them off.
The IRS has 10 years from the date the tax is assessed to collect it. Once ten years is up, they will send you a letter saying something like "We know that we can no longer collect this from you but if you want to pay, send money...." My relative made a payment arrangement with them and paid for 10 years and then the debt evaporated. I don't say that with pride or anything; that's the way they handled it.
They will freeze your bank accounts if you ignore them. It's imperative that this person at least contact them and get the ball rolling for a payment plan.
One more thing I should probably mention about financial disability - the physical or mental illness must be serious enough and have lasted long enough to have legitimately prevented the taxpayer from filing the returns. Until I retired, I worked as a hearing officer in the tax appeals section on the state level. I would always be skeptical of someone claiming that financial disability due to depression prevented them from filing a tax return, yet it did not keep them from being gainfully employed in a professional position and making six figures during that same period of time.
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He needs to get to a CPA or Enrolled Agent immediately. If you go the CPA route, ask them if they specialize in tax. At the very least, contact the local IRS ombudsman. Ignoring it will not make it go away and things will only get worse.
Number 1. Contact the IRS and have them provide printouts from their records of what they show should have been reported for each year. They receive all the records for income that has been reported and any withholding that was taken out. They can and WILL give this information to him. All he has to do is ask.
Number 2. File the returns! Even if he cannot include a check with them, not filing is the worst thing he can do. There is no statute of limitation for tax liability if returns are not filed. Once he has filed, he will then know for sure what the extent of the debt is.
Number 3. Work out a payment plan with the IRS to bring his accounts up to date. They will normally try to work with him and will not file leins or seize assets as long as he is putting forth an honest effort and not ignoring the issue or not keeping the payment schedules.
I'm not one to ever say the the IRS is a "warm and fuzzy" government agency but they will usually work with you if you are making an effort to work with them. I know from experience on this one from a similar situation with my brother.
Number 1. Contact the IRS and have them provide printouts from their records of what they show should have been reported for each year. They receive all the records for income that has been reported and any withholding that was taken out. They can and WILL give this information to him. All he has to do is ask.
Number 2. File the returns! Even if he cannot include a check with them, not filing is the worst thing he can do. There is no statute of limitation for tax liability if returns are not filed. Once he has filed, he will then know for sure what the extent of the debt is.
Number 3. Work out a payment plan with the IRS to bring his accounts up to date. They will normally try to work with him and will not file leins or seize assets as long as he is putting forth an honest effort and not ignoring the issue or not keeping the payment schedules.
I'm not one to ever say the the IRS is a "warm and fuzzy" government agency but they will usually work with you if you are making an effort to work with them. I know from experience on this one from a similar situation with my brother.
Good luck!
I agree with this advice with one clarification. While it is true that the IRS already has information about income earned and tax withheld, it does not have any records about the number of dependents, the filing status, itemized deductions, etc. So if the IRS estimates the tax liability it will be based on single filer and standard deduction. And I don't know for sure with the IRS, but in the state where I worked if the return was not filed by the taxpayer and instead had to be estimated by the agency, income was often doubled to account for income that had not been reported to the agency by third parties (and also to get the attention of the taxpayer and hopefully convince him or her to file the return themselves).
And while I'm on the subject, unless your relative lives in a state that does not have an income tax, you need to make sure you file the state tax returns as well.
It sounds like they're sending him letters notifying him of failure to file a return and haven't yet sent him a collection letter telling him what they think he owes.
I would locate a copy of the last filed return and start building a profile of what information needs to be collected for subsequent years from that return. Your relative can also go to the IRS and ask for a printout of the data that they've recorded from W-2's, 1099's, 1098's, etc. You still have to collect the information before you go to a tax preparer or a CPA. You might as well file the return yourself and see if the IRS accepts the return.
If he's been seeing a psychiatrist or a medical professional for his depression, I would locate some documentation about his illness and how it may have affected his livelihood, etc. A tax attorney or enrolled agent would use the information to ask for an abatement of penalties and related interest.
Go down to the IRS and explain the situation. They can put a delay on the collection process while you work on bringing his filings and payments up to date. They'll probably give you about three months. As you file the returns, the IRS will send you new collection notices taking into account the payments. At this point, you need to look into negotiating the penalties by working with an IRS taxpayer advocate or through an enrolled agent.
He needs to get to a CPA or Enrolled Agent immediately. If you go the CPA route, ask them if they specialize in tax. At the very least, contact the local IRS ombudsman. Ignoring it will not make it go away and things will only get worse.
That.
Time to enlist a CPA that deals with the IRS on a regular basis.
Ah, those funny commercials where the guy who owes $1.5 mil ends up paying 37 cents or something like that. That probably won't happen--I'm calling BS, anyway--unless teh IRS personalizes pulls a full cavity search on you and eventually figures after a few years that you can't have any earthly way of making serious enough income to repay that debt.
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