Catching up on unpaid, unfiled taxes - tax attorney or CPA?

November 17, 2023 8:10 AM

I made a serious withholding error on a 401k withdrawal in 2020 and at tax time I found I owed a combined mid-5-digit amount of money to both the IRS and my state. I freaked out, didn't file, and didn't file in 2021 either. I now have enough money to catch up (with penalties, whatever they might be). I haven't received any communication from the IRS or my state on this matter, but failing to file taxes is a crime in my state. Can anyone tell me whether I should start with a tax attorney vs a regular accountant?
posted by anonymous to Law & Government (9 answers total)

If your primary concern is your legal liability for nonfiling, rather than what you owe, you want a tax attorney. They will presumably be able to refer you to an accountant if accounting services are needed and can hold your hand while dealing with the IRS and your state tax authority.

Note: filing to file taxes is a federal crime under certain circumstances, as well. Unless there is a lot more to this story than you're telling us, it is very unlikely you will be prosecuted on either level. But this is not legal advice, and you should speak with an attorney if you're concerned.
posted by praemunire at 8:19 AM on November 17, 2023 [1 favorite]

If you have the cash on hand, I'd immediately make an estimated payment (which you can do without actually filing) to both your state and the IRS that would cover the underpayment. If it wouldn't cause you any financial hardship, add some more to cover possible penalties and interest. If you overpay, you will get it back. I'm not a lawyer, but it seems likely that a late payment even without any demand from the IRS or the state would reduce the already very low likelihood of any legal complications. In the end, they are primarily concerned with getting the money owed to them.
posted by Mr.Know-it-some at 8:29 AM on November 17, 2023 [2 favorites]

You're good with an accountant. Contact them now so you can file before the tax season starts.

Also, this is really common. Lots of people put off filing every year, for one reason or another. The IRS doesn't arrest people for filing late. They'll send you lots of notices in the mail well before they take any action. If anyone calls and says that IRS agents are on their way to arrest you, it's a scam.

If you want state-specific advice, we'll need to know what state you are in. If you're concerned about anonymity, maybe give us two or three states.
posted by meemzi at 8:30 AM on November 17, 2023 [4 favorites]

I do taxes with a volunteer program and we can go back several years in most cases. So most regular tax accountants should not have a problem doing the actual filing for you.

I think you can wait on hiring an attorney until charges are filed, mainly because I think there is a very, very small chance that they would be. You will end up with fines, of course, but the last 3 years have been so chaotic for so many that you are not the only person in this situation.

There are memes and jokes about people in the US going to jail for tiny mistakes on their taxes and it is all BS. Mistakes might cost you money, but people don’t go to jail for them. Making the same “mistake” over and over again might get you an extra look.

Using a professional and getting it all resolved at once will look pretty good for you if anyone is investigating. A lot of things defined as a “crime” are there to give prosecutors more options for charging people and more room to negotiate. Again, there is a very small chance you’d end up there unless you have a larger illegal or illicit operation going on.
posted by soelo at 8:33 AM on November 17, 2023 [1 favorite]

Go see a reasonably competent tax preparer. I understand you're upset and worried, but this happens all the time. You'll have to pay the tax and penalties, and it will be okay. The sooner you resolve it, the better it will be. Really. I have not had big back taxes, but have filed 4 years' of returns at once, No one batted an eye.
posted by theora55 at 8:38 AM on November 17, 2023

Why don't you first contact Taxpayer Advocates, they are independent but part of the IRS.

I was office manager, 20 years, for my husband who was a tax preparer. I learned:

to not be afraid of the IRS because he never dealt with any IRS agent who was out to get the taxpayer. No, every one bent over backwards to try to help the taxpayer.

your best bet is a seasoned tax preparer. My husband did several of these every year and always got the penalties removed. Why? Because the taxpayers were all first time offenders. A seasoned tax preparer can write a good letter politely asking for grace for a first time offender. 2. I think the IRS looked at my husband's record and saw that it was spotless and almost rubber stamped these penalty abatement letters. That's my hunch. That's why I say a seasoned preparer is recommended.
posted by cda at 8:43 AM on November 17, 2023 [6 favorites]

Also this IRS page explains the difference between levels of Tax Preparers, CPAs, etc. I mention this only because people seem to be leaning toward you getting an accountant and so it might help you to know the different levels of accountant as viewed by the IRS.

I imagine that their fees go up in line with their qualifications, so I'm not saying you need the best. I just thought I'd mention this as a *small* part of the puzzle, FYI.
posted by forthright at 9:41 AM on November 17, 2023

Start with an experienced tax preparer, have them compute your taxes for 2021 and 2022, and then they should be able to advise you of the next steps. I strongly suspect that your next steps will just be "file and pay what's owed plus interest."
posted by zippy at 11:13 AM on November 17, 2023 [2 favorites]

For "reasons" I failed to file for a few years. The fees were expensive once I eventually got it sorted out, and the whole thing sucked, but never once was there any mention of criminal penalties. The people at the IRS were actually quite understanding and empathetic when we spoke with them. We did hire an accountant just to make sure that we didn't screw things up even more.
posted by nixxon at 2:25 PM on November 17, 2023