When I became a tax paying adult, I was unprepared for adulting. Nobody told me that there was no forgiveness for ignorance. In fact, you were penalized quite often for what you never knew. There were things that, had I known, I would have done completely differently. So, for all of you out there that forgot to file, or filed late… don’t live in fear. Get the answers and get back on the ball.
In order to know if you need to hire a tax lawyer, first, you have to decide whether or not you have a problem they can solve. And that can only happen if you know you have a problem first. So, for everyone who (like me), made huge errors with taxes because I didn’t know any better…learn from my mistakes.
Can you go to jail for not paying your taxes?
Short answer? Yes. It is possible. Fortunately, there are different paths to take if your problem is that you can’t afford to pay. Also, the IRS is auditing fewer people these days. Less than 1%, in fact.
Luckily, most of the time, it’s just civil judgments and fines. But there are 3 actions that are considered crimes and can possibly land you in jail:
You can get jail time for tax evasion, failure to file, and tax fraud. So you need to stay aware!
How many years can you go without filing taxes?
Well that really depends. Do you or would you owe money, or would you be getting a refund? If you would be getting a refund, they don’t care. Basically, if they owe you money, it’s in their best interest if you don’t file so that they don’t have to pay you. By the way, if you don’t file within 3 years and they owe you money, they get to keep your cash. They also won’t charge you a late filing fee if they owe you money and you file late.
But if you owe or would owe them money…they care, a lot! They start off with charging you a 5% penalty fee for filing late. DAILY! This maxes out at 25% And this starts the instant you miss that April 15th deadline. But wait! There’s more. If you still haven’t filed within 2 months (60 days) of the April deadline… then you are subject to a minimum penalty. That’s $210 or 100% of your unpaid tax!
What happens if I get audited and don’t have receipts
It’s not the end of the world. There are actually a number of things you can do to provide a reasonable idea of proof.
First, remember that fewer than 1% of people are audited and that those audits are either red flagged or random.
Secondly, understand the deductions you may have claimed that ABSOLUTELY need receipts:
- Charitable Contributions: You won’t be able to slip these past the IRS without a receipt if you are audited.
- Gambling Losses: Keep the receipts, tickets, logs, diaries, everything!
- Travelling and entertainment: It is required that these records and receipts are created and kept at the time they were incurred.
- Mileage: You need to have amount, the mileage, dates, places, purposes, the whole 9 yards.
Third, (if you are trying to prove something other than the previously mentioned expenses), backtrack!
The IRS will allow you to use your bank records, credit card statements, customer or vendor records, and in some cases, even calendars and phone records.
Be aware that some forms of proof that are outside of the IRS’ usual requirements may need you to sign a declaration for them.
What is considered tax evasion?
Tax evasion is illegal. If you try to avoid paying your taxes, it’s considered a federal offense. You can be receive criminal charges as well as steep fines.
Part of tax evasion is tax fraud. That includes not reporting incomes, underpaying or refusing to pay taxes owed. Also lying about how much income, and or inflating the amount of deductions you claim. Say, for example, claiming you gave a thousand dollars to charity when you didn’t.
Don’t confuse tax evasion with tax avoidance! Tax avoidance is completely legal. Tax avoidance is using the tax code to maximize your tax refunds and minimize your taxes. That includes using every “legal” way to itemize deductions and claiming every credit that you actually qualify for.
Tax evasion is basically lying and cheating the government in order to avoid paying taxes or to get more money back in refunds.
Is there a one time tax forgiveness?
No. But…there is a statute of limitations for the debt that you owe. After 10 years, the IRS has to wipe the slate clean for that debt and you will no longer owe it. But there is no paper you can file or phone call that you can make to completely erase any debt that is less than 10 years old.
Also, I wouldn’t suggest trying to wait it out either…because of the whole criminal charges for tax evasion law we talked about earlier. But you do have options and you should never get discouraged and give up.
Can I get the IRS to waive penalties and Interest?
Yes and no. If you can prove that you don’t deserve the penalties because you were hospitalized or dead(?) or there was a fire or some emergency that caused you to be late in filing or paying, then yes. This is called the Penalty Relief Due to Reasonable Cause. But for it to apply, you must have and be able to prove (with records) there was a reasonable cause.
If on the other hand, you didn’t pay, or missed a deadline because you couldn’t afford to pay something, then no. Inability to pay isn’t considered a reasonable cause and you will be on the hook for all the penalties and interest they can charge you with.
Can you negotiate with IRS?
Yes! But you only have a few options for doing so:
Installment Plan
Offer in Compromise
Temporary Delay in Collection
These options were created and/or updated through the IRS Fresh Start Program.
What is the IRS fresh start program?
If you are having a hard time paying your taxes, there is hope. The IRS Fresh Start Program was created back in 2008 and reworked in 2012 to help taxpayers and small business owners settle their tax liability. Often times, for less than the full amount owed. Additionally, it makes it possible for the taxpayer to settle their debts without having liens placed on their vehicles or homes.
In order to qualify for the Fresh Start Program, you must:
- owe less than $50,000 in overall taxes.
- If you file single: Have earned less than $100,000 per year. If filing under the status Married Filing jointly, earned less than $200,000 per year in combined income.
- If you are self-employed, be able to prove that you’ve had at least a 25% reduction in net income.
Installment Plan
You can negotiate short and long term installment plans with the IRS to pay back what you owe.
Short term: There is no charge to set up this type of plan and you may be able to get this type of plan without incurring late payment fees.
The debt has to be paid back in 120 days or less and you may be subject to penalties until the debt is paid in full.
Long term/extended installment plans: You can get charged to set up this type of plan depending on whether you have the payments directly taken from your bank account or pay them manually. Luckily you can avoid other tax related fees in the process and will have several months to pay the debt in full.
Make sure you make your payments in full and on time to avoid the wrath and consequences of the IRS. They are pretty strict.
Be patient! It can takes weeks up to a year to come to an agreement with the IRS about payment plans.
Offer In Compromise (OIC)
The Offer in Compromise is the white whale of tax debt resolution. It allows you settle your debts with the IRS for less than what you owe. So naturally, there are quite a few factors that are considered before they will allow it.
They even tell you right on the IRS website “ Explore all other payment options before submitting an offer in compromise.”Just to apply, you have to send 4 things (you or your tax lawyer). I’ll include the Offer in Compromise guide here if you want more information.
1. $186 application fee. Non-refundable fee.
2. The Initial Payment for each form 656 (Offer In Compromise tax form) The form itself states that is only to be used by tax professionals (like a tax lawyer) and not individuals.
3.Form 433-A (Collection Information Statement for wage earners and Self-employed individuals)
4. Form 656 (Offer In Compromise)
If you qualify for the low income certification, you won’t need to send the fee or initial payment. Nor will you be required to make monthly payments while your offer is being considered.
Your Initial payment will be based off what you owe and the payment type you choose.
Lump Sum: Initial payment is 20% of total debt and the rest is to be paid in 5 or less installments. You would be required to state on the form (656) during what month you would pay each payment. You don’t have to pay the same amount every time. And you don’t have to pay every single month. The only stipulation is the initial payment and that there are 5 or fewer payments.
Periodic Payments: You are allowed to choose your payments as long as that payment is enough to pay off the full amount between 6 and 24 months. So if your debt is $24,000, you can choose to pay $4,000 every month on the same day of the month. Or you can choose to pay $1000 every month on the same day.
And just so you know, whatever you send as an initial payment is applied to your tax debt, even if you get rejected for the OIC.
Additionally, the IRS may still file a lien against your property while you are being considered for the OIC (offer in compromise), but if you are accepted, they will release the lien within 30 days of having the payment terms satisfied.
Do you qualify for the Offer in Compromise?
Good question. Luckily, the IRS offers an interactive qualifier tool to check your eligibility. Yes, they ask about your assets, income, and expenses. But even before you get into all that. You are asked the following 4 questions.
- Are you in an open bankruptcy proceeding? If the answer is yes, you do not qualify.
- Have you filed all required federal tax returns? If the answer is no, you do not qualify.
- Have you made all required estimated tax payments? If the answer is no, you do not qualify.
- If you are self-employed or have employees, have you submitted all required federal tax deposits?? If the answer is no, you do not qualify.
Temporary Delay in Collection
If you can’t afford to pay at the moment or paying would put you in financial hardship, you have another option. You can ask the IRS to temporarily delay their requirements for you to pay until you are back on your feet. You may be required to file Form 433-A or 433-B (individuals or businesses).
Should I get a tax lawyer?
That depends. Are you confident in your ability to represent yourself adequately before the IRS? Do you have the in depth knowledge of tax law? Are you aware of all the deadlines,paperwork, details and loopholes involving your taxes? Because if the answers are yes, then save your money and represent yourself. But be aware. If you ask an accountant or tax specialist to represent you, they can testify against you to the IRS. A tax lawyer can’t.
Also, if you are charged with a tax crime, you want a lawyer who specializes in that area to represent you. Don’t play with your freedom.
What can a tax lawyer do for you?
Tax lawyer’s represent you in criminal cases brought against you by the IRS. They negotiate tax settlements. Tax lawyer’s handle legal and technical issues. And you can consult with them beforehand to stop you from getting yourself into trouble. Don’t forget that tax lawyers studied tax code and work with it for a living. Their expertise in that field can be invaluable.
How much do tax lawyers cost
Some tax lawyers may charge a flat fee, but most charge by the hour. And the hourly rate is on average between $200 and $400. Additionally, it’s not unusual for a lawyer to ask for a retainer.
Here are some averages of what it may cost you, depending on what you need.
- Installment Agreement: $750 – $1,500
- Offer in Compromise: $3,500 – $6,500
- Penalty Abatement: $1,000 – $2,500
- IRS Audit (simple): $2,000 – $3,500
- IRS Audit (complex): $5,000 +
- IRS Appeals: $5,000 – $7,500
- US Tax Court Litigation: $10,000 or more
What is the difference between a tax lawyer and a CPA
A CPA is a certified public accountant. They are experts in tax preparation and balancing your books. A CPA is indispensable for businesses that have complex financial records and taxes. Most people opt for a tax resolution specialist for simple tax preparation and filing though. A tax lawyer on the other hand, is an expert in tax law and can represent you as well as counsel you if you are having issues with the IRS. Where a CPA is an expert in tax preparation on the financial side, a tax lawyer is an expert on the legal side. Both can guide you with tax planning though.
How do I find a reputable tax attorney?
You can start by asking people you know. Especially if you know they’ve had problems with the IRS that were settled easily. (Everybody wanted Johnny Cochrane after O.J. Simpson was acquitted of murder). Failing that, you can check with the local Bar association.
Make sure you ask a lot of questions besides how much they charge. You want to know things like:
- What types of tax law do you specialize in?
- How long have you been practicing?
- Can I see proof of your State Bar admission?
- What are your prices and how are they calculated and paid and when?
- How much contact will we have to keep me informed about my case?
Summary
There are only 2 things certain in life. Death and taxes. Let’s just make sure that we don’t allow one to cause the other. Because honestly, it could go either way.
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