The Non-Filer's Dilemma: Should I File My Taxes This Year?

There are more than a few people out there right now who are struggling with the decision: Should I file my taxes this year? And particular if they have been delinquent for a few years.

On the whole, it's better to file -- even if you can't pay -- for a number of reasons:

- IRS, and your state tax agency, distinguish civil tax violations. There are a separate set of penalties added to your tax bill for "failure to file" and "failure to pay." Go ahead and file, at least. You can save money in penalties that will be racked up.

- Or get more time with an installment agreement. For tax debts of $25,000 or less in combined tax, penalties, and interest, you are virtually guaranteed an installment plan and at a monthly payment you propose and can afford. Note that you will still be accruing interest and penalties so that the tax debt grows at about a 25% rate. You will need to make a large payment to actually pay down the tax bill. Don't end up like a lot of the taxpayers who come into our office and lament: "We've been paying IRS for several years now, and it's not going down!" Otherwise, at most, you are buying time.

- Can't pay? Then ask to placed on "uncollectible status."." However, if successful, that only forestalls the day of reckoning. Eventually, it's hoped, you will be earning more, and when that happens the taxman will see it from W-2s sent to the agency, and he will come a-knocking for what's owed.

- Wait three years and you may be able to get rid of the tax in bankruptcy. One of the key requirements to discharge a tax debt is that you must have filed a tax return for that tax year more than TWO years before the bankruptcy filing. Chronic non-filers will have a serious problem when they bump into the two-year rule. Often we get visits from taxpayers who haven't filed for a while and now want to "come clean.". We can help them to freeze the last three years of taxes from growing and pay them off in a Chapter 13 bankruptcy, but there is no discharge, unfortunately, for the other years. It can be solved, but it may not be easy, and it may not be cheap.

It's almost a cliche, but it's true: Nothing's as certain as death and taxes. IRS will know where you work, have bank accounts, or keep investments from your Social Security number. Eventually, IRS will prepare a return for you, but with minimal, if any, deductions such that your tax bill will be much larger than if you prepared it yourself. Also, before IRS or the bankruptcy court considers tax relief in your case, you will have to get all the missing tax returns prepared and filed. So, why wait? Just get it done.


------

Edward Gonzalez is principal of a tax and bankruptcy practice serving Maryland, Virginia and the District of Columbia. He worked for the IRS and holds a JD and masters of tax law from Georgetown University. He has 20 years experience. For more information, call the Law Office of Edward Gonzalez, P.C. at (202) 822-4970 and visit his website at Money-Law.com.