Tax problems a la Willie Nelson

February 19, 2005 1:01 PM

Filing taxes for first time in 4 years - yikes.

I am helping a friend with their taxes this year. Unfortunately, they have not filed their taxes since 2000 or 2001. What do we do? What should we know? I've googled several different combinations of searches with no luck or insight to be found. Oh yeah - they probably owe taxes most of those years, have one or more W-2s and a 10-99 for each year, AND do not have copies of ANY W-2s or 10-99s from those mixed up years. Some super constructive advice would probably make this less daunting.

posted by eggerspretty to law & government (10 comments total)

I'm not trying to be snarky, but the most super constructive advice I could give is to refer your friend over to an accountant or tax attorney. It sounds like your friend has the *potential* to be facing major headaches with the IRS

I've known people who have been audited and the thing that saved them from having their molehills turned into mountains was a solid accountant.
posted by dicaxpuella at 1:17 PM on February 19, 2005

My wife (an accountant) helped out a cousin a couple of years ago in a similar situation. The IRS was actually very conciliatory and worked out a payment schedule for the back taxes owed, plus penalty. If the amount owed is large then a tax attorney is the way to go, I've seen good ones bargain the IRS down to 10 cents on every dollar owed.
posted by white_devil at 1:30 PM on February 19, 2005

Get an accountant or lawyer immediately.

An acquaintance of mine skipped a couple years when he was massively depressed due to the death of his young daughter. He stopped working & basically sat in his room drinking for a couple years.

...when he finally started working again & had a W-2, the IRS came down on him like a ton of bricks. They simply refused to believe that he hadn't done any work for several years, and he spent another 3yrs fighting with the IRS before they finally gave up, saying "we still think you're a liar, but we're not going to throw you in prison because we can't find any money and you do seem to have spent your life savings, but we can change our mind at any point in the future so watch your ass or we'll come back after you".

My acquaintance didn't hire an accountant or lawyer at any point, which struck me as his major mistake.
posted by aramaic at 1:37 PM on February 19, 2005

Here is what the IRS says about it. There's also this and this. In a nutshell, it basically says to notify the IRS or involve a "tax professional" and get the delinquent returns filed. It implies that if your friend waits to for the IRS to approach him/her about the unfiled returns, it could be oh so much worse, and it is probably fair to say that if your friend tries to resolve it before they catch wind of what's going on (and they will), they will be much more amenable and flexible in working something out.

This is what I'd do: absolutely, definitely help your friend file their return this year. After that's done, then ask a tax attorney or accountant about the unfiled returns for prior years. Point to the good faith effort of filing this year as well as initiating the resolution of your friend's tax bill. Unless your friend had no payroll taxes deducted on their income, the bill may be much lower than he/she fears that it is. (Note that if it turns out there were refunds, there is a 3-year statute of limitations to claim them).
posted by contessa at 1:40 PM on February 19, 2005

Oh yeah, as for the missing W-2s and 1099s, they can ask their employer (or whoever was their employer at the time) for copies of the W-2s, and ask their bank for prior-year 1099s. It is not a big deal, and that in itself wouldn't raise red flags of any kind because there are many other reasons why you might need those.
posted by contessa at 1:44 PM on February 19, 2005

Another vote for an accountant or a tax lawyer. A, er, friend of mine (ahem) skipped filing one year back in the mid-'90s (broke and probably owed nothing anyway), and was very lucky nothing came of it. If your friend is going to work out something amenable with the IRS and avoid the nightmare that aramaic related, he or she needs someone who really knows how this situation works, both legally and logistically.
posted by scody at 1:48 PM on February 19, 2005

I've been there. Definitely hire a professional; don't even think about going into this without a tax lawyer on your side. Expect the IRS to charge you interest and penalties for late filing and unpaid taxes. Those charges are accumulating every day, but a good lawyer might be able to find ways to keep them from going up too much while you're getting your act together.

My lawyers recommended the opposite of what contessa says. They told me to send the return for the current year in together with the older ones, in order to show as much good faith as possible about getting back into the system. Also, make sure right now that withholding or estimated tax payments for 2005 are all clean as well. If your friend has some self-employment income, then they've already missed the Jan 15 estimated tax payment, but they should send something in now for 2005 rather than waiting for the April 15th deadline.

In my case, my non-filing got me on an IRS shit list, and a year later they slammed me with a bogus penalty for several times my tax liability for that year. My lawyer eventually got it eliminated, but it was a big hassle. You want someone who really knows what they're doing handling this for you.
posted by fuzz at 3:55 PM on February 19, 2005

Keep in mind that the IRS is seriously understaffed. If the amounts of taxes owed (ignoring penalties and interest) are relatively low (say, less than $5,000 or even $10,000 for each year), then the IRS is not going to make a big deal of this - it's not worth their time. Yes, they'll ask for the full amount of penalties and interest (because those are specified in IRS regulations), they'll certainly be amenable to a payment schedule (they're realistic about how quickly people can pay off their debts), and these situations probably occur tens (or even hundreds) of thousands of times each year. (Wiith over 100 million tax returns due each year, even a very small percentage of non-fillers means a large number of people.)
posted by WestCoaster at 4:08 PM on February 19, 2005

"My lawyers recommended the opposite of what contessa says. They told me to send the return for the current year in together with the older ones, in order to show as much good faith as possible about getting back into the system."

I second that. File them all ASAP.

My friend (ahem, me) has been through this and just this month paid my last installment on several years of back taxes. If your friend does set up an installment plan (which they are very amenable to) pay on time, every month. If you do need to skip a month call them and keep in touch.

Be thankful that the IRS has changed their hold music -- Vivaldi's Four Seasons has me breaking out in a cold sweat within the first four bars.
posted by heather at 8:22 PM on February 19, 2005

I've done this for several people, and the most important thing I'd suggest is doing all of it at once. Nothing brings up a red flag like a current return for someone who hasn't filed in years. Sometimes that alone can trigger an audit.

You can get back copies of the 1099s and W2s from employers, as someone said. If that's not an option (the company no longer exists, for instance), you can also request them from the IRS itself. It will show everything but state data, and takes between four and six weeks to arrive. Getting the state data can be a bit harder, and varies depending on where you are.

Go for an installment plan, and by all means get a pro to do it. Most will, at minimum, assist with any IRS letters/audits/meetings. At best a tax lawyer/accountant, at minimum someplace that can set you up with an EA (enrolled agent- someone who is skilled in representing people with the irs and so on).

If it's more than a single year behind, and you owe them, send the old ones first or, at minimum, with the current year. If they owe you, take your time since they don't care nearly as much (and honestly, since you forfeit any claim to a refund after three years, they'd prefer you not to file).

On preview: spellcheck wanted to change "1099s" to "personality." Oddness...
posted by Kellydamnit at 6:15 AM on February 21, 2005