Unfiled tax returns

June 19, 2007 6:28 AM

I never filed my 1999 and 2000 tax returns. No one has noticed.

I had the returns prepared but never filed them. I had no W-2's or 1099's for that year and did not own a house or anything else like that. All I had were K-1's from a business I am no longer involved with. Profits from the business passed through to me personally on the K-1's (despite that I never received any of the money) resulting in significant tax debt personally. With interest and penalties the debt is probably well over 100k. To date I have never received any notices from the IRS. What's going to happen to me?

posted by anonymous to Law & Government (8 answers total)

Since you have not filed, the statute of limitations on assessment has not start to run. In other words, the IRS will have the right to assess the tax deficiency forever.

Had you filed (even a return showing all zeros), the IRS would have had 3 years to assess the deficiency (6 years in the case of substantial understatements).

You need to consulant with a tax advisor and settle this with the IRS. It will not go away with time.
posted by probablysteve at 6:41 AM on June 19, 2007

Someone has noticed, and they're waiting for you to do it long enough. Get after it ASAP.
posted by vanoakenfold at 6:45 AM on June 19, 2007

Yeah, you know you need to start coughing it up.

On a side note, I don't know what industry you're in, but if you ever work for the government or one of its contractors, be aware you may have to go through a security clearance to keep your job, and if that's the case, THEY WILL FIND OUT.

Just a thought. And find a tax advisor/lawyer ASAP.
posted by universal_qlc at 8:51 AM on June 19, 2007

IANAL. In an S corporation profits pass to the owners and are taxed on an individual basis, whether you get the cash or not. But it seems to me that if you never got any of the money ascribed to you, even in subsequent years as part of a cash-out, that might help enable a zero-cash settlement. If the corporation dissolved after this period with no cash out, there should have been a corporate loss passed along to you on a K-1, which could offset your ordinary income in those years. So over a period of years, if the corporation in question had profits and losses that balanced out and netted you no cash, you really should not owe any net taxes over the period.

Of course, if you did take advantage of the pass-through losses in later years, then you really do owe the money for the years you didn't file.
posted by beagle at 9:32 AM on June 19, 2007

I also didn't file '99 and '00. Last year I had a substantial return and the IRS wouldn't give it to me until I had filed those two returns.

File them.

And right now is a great time to talk to a tax professional. The spring rush is over and they're all back from vacation.
posted by Ookseer at 10:40 AM on June 19, 2007

If you don't owe taxes, it's no big deal. Since you do owe taxes, you need a tax lawyer right away. The IRS is soulless and incomprehensible. Don't ever consider screwing with them.
posted by theora55 at 11:26 AM on June 19, 2007

I can't answer your question, but I can relate. I am someone else who procrastinated filing taxes. For about six months, I've been thinking "I can't start dealing with this until I have a katrillion dollars ready in case I end up owing money." I actually might not owe anything, but in the shadow of not knowing, it's easy to imagine the worst. What I've been trying to do instead is see it as a sequence of very small steps, like "ask people for the name of their accountant," etc. Like a new hobby. :)

So, I called an accountant, and now I'm not alone with the problem, I have an expert telling me what to do. I have to get one more set of paperwork, then he'll do all the math. This feels so much better than just worrying about it, even if the news comes back bad.

So, sorry if this is super-obvious, but my only comment is that with step-by-step action, it might not be as bad as you think. From what I hear about the IRS, they're more lenient if you call them than vice versa. And they make it easy to set up payment plans. I bet the piece of mind a tax specialist could give you would be worth much more than it would cost to have one meeting.

In short -- try to stop feeling scared and start taking action. I bet the worst part will be the moment you hear "you owe $X." Then you'll get used to paying $Y a month, and you'll be fine.
posted by salvia at 11:44 AM on June 19, 2007

While you're deciding what to do, be very careful whom you let know about this. The rewards for snitching to the IRS are considerable - up to 30% of the total recovered.

I'm with the folks who say you're eventually probably going to have to pay up, incidentally. Your best bet for a consultant might be an Enrolled Agent. Since their professional duty is to the IRS first and to their client second, ordinarily I say steer clear of them - but, because of this, they're not eligible to collect the 'tax snitch' reward, and so there's no conflict of interest.
posted by ikkyu2 at 9:00 PM on June 20, 2007 [1 favorite]