Unfiled Tax Returns

Delinquent returns are technically a criminal misdemeanor and are often more closely examined and scrutinized by the IRS, requiring that much more care and accuracy to avoid audits. But only an experienced attorney can provide the expertise needed alongside the protection of the attorney-client privilege — a vital asset if you feel that you’re at risk for prosecution. Delinquent taxes, if handled in the wrong way, drastically increase the chance of criminal prosecution or enforced collection activity.

The attorneys and tax professionals at Rosefelt Tax Lawunderstand IRS voluntary compliance requirements and have extensive experience representing non-filers before the IRS and state taxing authorities. They offer a unique combination of both tax law experience and CPA knowledge that can ensure your assets are protected.

If you’re wrestling with delinquent or unfiled tax returns, don’t go it alone. Contact Rosefelt Tax Law at 866-995-0061 or reach out by completing our contact us form to see if you qualify for a case review.

Severe Consequences For Non-Filers

The IRS estimates that approximately 10 million taxpayers fail to file their federal income tax returns each year, which results in large amounts of back taxes and fees. The reasons for noncompliance vary: some taxpayers simply procrastinate, others don’t understand their filing requirements. Some taxpayers lack the money to pay the taxes they owe and, rather than asking the IRS for a payment plan, hope that simply ignoring the problem will somehow make it go away. In a few cases, taxpayers willfully fail to file in an attempt to evade their responsibility to report their income and pay their tax liability. Regardless of the reason, the IRS identifies all of these taxpayers as “non-filers.”

In most instances, the problems faced by non-filers can be resolved successfully if the taxpayer obtains experienced legal counsel and voluntarily addresses the problem. On the other hand, continuing failure to voluntarily comply with tax return filing requirements can result in severe consequences. In some cases, a non-filer may even suffer criminal tax prosecution.

Identifying Non-Filers

For many years, the IRS lacked the budget and the ability to identify habitual non-filers. However, the IRS has substantially increased its budget for technology that will enable it to find and pursue taxpayers who fail to regularly file their returns. As a result, the IRS has targeted the problem of non-filers as one of its highest priorities. Recently, the IRS has announced an increased effort to identify high-income non-filers. 

The IRS develops and continues to improve sophisticated computer matching and software programs that identify and locate these taxpayers. Those capabilities are constantly being improved to enable the agency to match third-party income and expense information returns with taxpayers. If you have not filed all required tax returns, and have not yet been discovered by the IRS, it is only a matter of time.

Willful failure to file a tax return is a misdemeanor carrying a maximum sentence of one year in prison for each tax year and a fine up to $25,000. Tax evasion is a felony carrying a maximum sentence of five years in prison for each tax year and a fine up to $100,000. Do not risk criminal tax prosecution. Voluntarily bringing your income tax return filing obligations into compliance can spare you enormous personal and financial costs in the future.

Voluntary Compliance

The IRS has a longstanding policy of encouraging voluntary compliance, even among taxpayers who have failed to file or who have filed fraudulent returns.  In many cases, if a taxpayer seeks to correct the problem before the IRS opens an investigation or examination, it is possible to use the IRS’s “Voluntary Disclosure” policy to file missing returns and avoid prosecution. The taxpayer must be careful to file returns that are accurate and truthful. If the IRS determines that late-filed returns are false, the taxpayer will be removed from the Voluntary Disclosure Program and the chances of criminal prosecution increase tremendously.

The IRS’s voluntary disclosure policy applies to a taxpayer who:

• Voluntarily informs the IRS of his failure to file or erroneous filing for one or more years;
• Had income from only legal sources;
• Makes the disclosure prior to being informed that he is under civil examination or criminal investigation;
• Files a correct tax return and cooperates with the IRS in ascertaining his correct tax liability;
• Makes full payment of the amount due, or if unable to do so, makes good faith arrangements to pay.

Enforced Compliance

Once the IRS identifies and locates a non-filer, the agency begins to send a series of notices requesting that delinquent returns be filed. Usually, the IRS will send a series of four computer-generated notices (often referred to as “CP Notices”) to the taxpayer prior to initiating personal visits or telephone contact. Individual taxpayers receive these CP Notices over a 26-week period while business taxpayers normally receive at least three notices during a 22-week period. If the taxpayer fails or refuses to respond to the computerized notices, the IRS uses a variety of methods to force compliance. The IRS may even prepare its own tax return for the taxpayer based on third-party documents and information returns filed with the agency. It may also attempt to contact the taxpayer by telephone or assign the case to a Revenue Officer for field investigation.

If only telephone contact is warranted, the case will be assigned to the Automated Collection System (ACS). Once contacted by ACS personnel, the taxpayer will be asked to file his or her delinquent returns. ACS employees may also contact neighbors, employers and others in an attempt to secure information about the taxpayer’s potential tax liability. Once the IRS secures adequate information about a non-filer’s income and the taxpayer fails to voluntarily file a return, the IRS will often prepare its own substitute for return on behalf of the taxpayer.

Substitutes For Return

Substitutes for Return (SFRs) are prepared and filed pursuant to authority granted the Internal Revenue Service by IRC § 6020(b). In order to conserve manpower and financial resources, the IRS will use a variety of information sources to automatically handle cases meeting the following criteria:

1. The taxpayer is not self-employed;
2. The taxpayer’s total income is less than $100,000;
3. The income shown in the IRS’s databases totals more than 75 percent of adjusted gross income and total positive income on the taxpayer’s last filed return;
4. The tax year is no older than six years prior to the current tax year;
5. There is no current or pending “uncollectible status” on the account;
6. The taxpayer’s address has been verified.

If any of these conditions are not met, the matter will be sent to a Revenue Officer to review and obtain pertinent information prior to the creation of an SFR.

Criminal Non-Filing

If the IRS discovers a habitual non-filer before voluntary disclosure, either through its own non-filer programs or through an informant, the IRS will often refer the matter to its criminal investigation division (CID) to determine if criminal prosecution is warranted.  The CID typically targets “high-impact” individuals, taxpayers who habitually file “non-processable returns,” and “tax protestors” for criminal prosecution. IRS Special Agents assigned to the CID also evaluate the information obtained in their investigation to identify certain suspicious activities, called “Badges of Fraud,” that may indicate criminal tax fraud.

If you believe you may be at risk of a criminal investigation or prosecution for tax fraud and evasion, contact Rosefelt Tax Law at 866-995-0061 or reach out by completing our contact form to know your real options.

Attorney-Client Privilege

The attorney-client privilege is a legal concept that protects certain communications between a client and their attorney and keeps them private and confidential.  Individuals with unfiled tax returns often begin seeking help by contacting their accountant. Federal and state laws recognize a limited accountant-client privilege concerning confidential communications for civil tax purposes only. However, accountant-client privileges do not apply to criminal cases. Additionally, there is no client privilege at all with any kind of “tax return preparers.”

Only the attorney-client privilege is valid during a state or federal criminal tax investigation or prosecution. This privilege is often a critical component in representing and defending a taxpayer with unfiled returns or unpaid taxes. As tax attorneys, your communications with us are protected by this attorney-client privilege.

Contact Experienced Tax Professionals

If you have unfiled tax returns and need help, contact Rosefelt Tax Law at 866-995-006 or reach out by completing our contact form.