How to deal with the IRS?
September 4, 2006 7:31 AM   Subscribe

Help me with my scary tax problem.

I haven't filed income taxes since 1994. The IRS has caught up with me and is now sending me lots of letters and registered mail (which I ignore). I have had a steady job for all of those years and taxes have been taken out of my pay. How far back can they go? To 1994? To 1999? I am terrified and I want to handle this, though. What do I do?
posted by anonymous to Work & Money (12 answers total) 2 users marked this as a favorite
Contact them. They're actually pretty easy to work with. You'll need to file for the years you didn't and then work out a payment plan.
posted by DieHipsterDie at 7:36 AM on September 4, 2006

This is assuming you need to pay. If they owe you, you still need to file for the years you missed. There may be penalties.
posted by DieHipsterDie at 7:37 AM on September 4, 2006

Frankly, if your tax situation has been simple, your problem is easily solvable. If this is true:

--you basically had one job, and deductions for federal and state taxes were taken out, and you didn't have any other major amounts of income

then the truth is, the IRS (and state government) owes you money. This is not a terrible situation. Relax.

"How far back can they go" is a question with many answers. It differs depending on the situation. See how far back they WANT to go - read the letters they're sending you - and go back that far.

You probably don't have records. That's okay, the IRS does. Call them at 1-800-829-1040, and ask for copies of your "payer transcript" for all the appropriate years. That's the info the IRS has in its database about what you got paid and how much tax was withheld (it was submitted by your employer). It's basically the same info as your employer provided you on your W-2 forms each year in January.

Once you have this all in hand, you can either:

a) request from the IRS (or download from their website) all the previous year tax forms, and do the returns for each year

b) or dump it all off on HR Block or some similar company.

You'll also want to do state tax returns, even if your state is not bothering you presently.

Either way, the way forward is just to read the letters they sent, take in the info, and do your tax returns. PLEASE NOTE: IRS letters often contain hugely large numbers that they say you owe. They are NOT calculating those numbers by doing your tax return in full, they are taking things out of context. Those numbers are WRONG. How much you owe (or more likely, they owe you) can only be ascertained by fully and correctly completing your tax returns for the appropriate years.
posted by jellicle at 8:00 AM on September 4, 2006 [3 favorites]

H&R Block and other strip-mall tax preparers are a waste of money if you have to file this many back years. You'll get charged prep fees at the current rates for 20 returns (assuming fed & state)...thubmnail guess would be something between $1,500-$4,000 for something you can do yourself.
This link is a start. If IRS owes you money, you have three tax years to get it back. If you owe the IRS money, The IRS has a 10-year limit, subject to a a loophole in the tax code, where if the IRS prepares a return (because you did not) and you don't respond to it, there is *no* statute of limitations. IANATL but now that IRS has got after you it's best to respond forthwith. States differ, and some are more punitive that the feds on fines for non-filing when a tax liability exists.
You can get tax forms via the downloads as mentioned above. I had four years of unfiled returns. I took care of it before the IRS notified me. It still cost me a crapload.
Good luck!
posted by nj_subgenius at 8:34 AM on September 4, 2006

They just want their money. If you've been paying withholding taxes but not filing, you just need to file returns.

Ignoring the IRS is the dumbest and most dangerous thing you can possibly do; they have a protocol for what eventually happens when you do that, and you won't like it one bit.

So call them, talk to them, and work out a plan. If you'd rather have some help than try to work it out yourself, get yourself an accountant who is experienced in working with people with tax problems, contact the IRS (together), and work out a plan to Get Right With The Man.
posted by enrevanche at 8:42 AM on September 4, 2006

I just got done dealing with something similar. The fact is that they're nice, they're helpful and, in your case, they probably owe you money. Suck it up, call, set up a schedule, and get to work. Consider working with a bookkeeper in your area -- a good one will do taxes, but since s/he's not actually an accountant, it'll cost you a lot less than a tax attorney or something.
posted by waldo at 8:45 AM on September 4, 2006

I agree... if you had a simple job with withholding and no weird investment windfalls, the IRS will owe you, not the other way around. They're mostly bitching because they need your income tax return anyway, and you know how bureaucracies hate loose ends. As I recall there are penalties for not filing, so that might eat into the refund to some extent.

And I also agree... just gather up your W-2's and do it yourself... once you learn the ropes it's really easy. You'll only use a tiny fraction of those mountains of instructions they send.

The definition of a scary situation is not filing and being self-employed or a contractor.
posted by chef_boyardee at 8:49 AM on September 4, 2006

Not scary. Just something you've been dumb about.

Open the damn letters. Not opening them isn't making it go away, it's just making it worse.

The problem with the IRS is you're guilty until you prove your innocence, so go out there and do it or they'll nail you to the wall and then it will get scary.

Do what jellicle recommended. Call them and have them send your info. Since you have some kind of paranoia on the subject it might be worth it to dump it all on an accountant so you don't have to think about it. If you only have earnings from one source the costs should be very minimal. Make sure they do the state taxes as well (if needed) because an filing a fed return will usually trigger the same kind of curiosity from the state.

And everyone else is right. If you've done your withholding right they probably owe you money. Get out there and get it back!
posted by Ookseer at 9:04 AM on September 4, 2006

I had a similar experience, which I recounted in this prior AskMe thread. Replace the words "your mother" with the word "you," and it's just as relevant to your situation.

I had a not entirely dissimilar experience. For me it was my personal income taxes, not taxes for a business, but still. Basically, I was being treated as a (very low-paid) independent contractor, with no taxes being taken out of my pay, and I made so little money that I spent it all just to live, and had no money left over at the end of the year to pay taxes.

So I didn’t. Didn’t even file. For 2 years in a row.

Until I got a letter from the IRS saying, basically, “Uh, excuse us for inquiring, but we’re wondering why it appears that you haven’t filed your taxes in a couple of years. Please come talk to us at X time on Y day, at Z address.”

After some days of significant panic, I went and talked to them, got myself a very good tax accountant (not a lawyer, by the way), and got my shit taken care of, got on an IRS approved payment plan for back taxes plus interest and penalties, and it was all over and done with in another two years or so.

I remember being surprised by two things during this process: first, the IRS people were surprisingly nice and helpful, and, second, the interest and penalties were much less than I had feared.

Now, I’m not saying my experience was typical, and I was a low-paid wage-slave being (possibly illegally) treated as an independent contractor, rather than a business owner like your mother, but once I finally mastered my panic over being “busted,” it all turned out to be much less difficult and scary than my imagination had built it up to be.

And I guess that is my larger point, here: that it sounds as though your mother is in some denial, and in full-on avoidance mode, but if you can convince her to bite the bullet and get a good tax accountant, things may turn out to be a good deal less scary than she fears.

Of course, part of your problem is that she is refusing to LET you use an accountant, and, unfortunately, I have no useful advice to offer there, except to say that I wouldn’t have done it either UNTIL I GOT THAT LETTER FROM THE IRS, largely because I wouldn’t (or couldn’t) admit even to myself (let alone to anyone else) how scared I was of the whole situation. It wasn’t until my worst fears were realized that it became easier to turn the whole mess over to a professional and let her handle it. (Which is, in its own way, just as much avoidance as my earlier behavior.)

I seem to have strayed from my point here. If, in fact, I ever had one. Sorry. I’ll shut up now.

posted by dersins at 11:15 AM on September 4, 2006

Please see a lawyer first before you contact the IRS.

While it is true that the IRS is a surprisingly helpful and sympathetic agency, that attitude hits a cold hard wall when it comes to people whom the agency thinks have deliberately tried to cheat the government. There are also a wide variety of formal and informal threshholds for how hard-ass they're going to be. There may be particulars in your case which make an examiner think you've been cheating, and twelve years of non-filing may cross certain threshholds in terms of treatment.

You should be able to arrange a consultation -- expensive, but not ruinously so -- with a good tax defense lawyer who can review the particulars of your situation and advise you whether you should take the first crack at resolving this as suggested above, directly with the agency, or give you other direction if the circumstances of your case warant.

If the lawyer says you're in trouble that a payment plan won't address, you'd probably want to get a second opinion, and if that went the same way, too, start preparing a serious rainy-day fund. Hopefully that won't happen, of course, but you need to prepare appropriately.
posted by MattD at 11:25 AM on September 4, 2006

Two years after our divorce my ex gave the IRS my address and phone number, putting me in a situation similar to yours (not as many years). They gave me all the info, I filed and recieved a nice check awhile later. While the potential is there for a nasty situation it may not be as bad as you fear. Good luck.
posted by pointilist at 1:41 PM on September 4, 2006

IANATax preparer but...

MattD's advice is more relevant to people who haven't had taxes withheld from their W-2. It sounds like you have.

The IRS can go back as far as it wants. The 3 year limit you hear about starts on the day you file- if you never file the clock never starts. And it doesn't apply in any case if they think you've been deliberately fraudulent (as in, not reporting 25% or more of your income and things like that).
posted by small_ruminant at 8:00 PM on September 4, 2006

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