ASK THE EDD LAWYER – WHAT DO I DO IF I HAVE NOT FILED TAX RETURNS? YES, THERE ARE GOOD RESULTS!
By Robert S. Schriebman
I recently received a newsletter from the Franchise Tax Board (FTB).The FTB has mailed more than one million letters to people who have not filed their 2012 state income tax returns. The FTB is asking these people to file their returns or to explain why they may be exempt from having to file. The FTB has given these people a thirty-day deadline to come forward with their unfiled returns or with a valid explanation that will excuse them from filing. Failure to respond may result in an arbitrary FTB assessment that will include delinquency penalties, interest, and fees that may equal up to fifty percent of the underlying tax deficiency.
For a long time the IRS has had in-place procedures for notifying non-filers. If you do not respond to IRS inquiries the IRS code allows the IRS to estimate your tax liability and to issue an assessment together with delinquency penalties and daily compounding interest. This estimated assessment process will not take into consideration any itemized deductions or credits that you may be entitled to if you prepared the returns on your own. Failure to file returns is also a crime under the IRS code as well as the California Revenue and Taxation Code. An aggravated case of failing to file may carry felony charges which could result in fines and jail time.
In our office we see plenty of non-filer cases. Unfortunately, many clients have a helpless and hopeless attitude when it comes to their failure to file returns. This does not have to be the case. Both the IRS and FTB want you to file your delinquent returns. They are not particularly interested in filing criminal tax charges against you. They are anxious to work with you to establish payment arrangements and to avoid any criminal exposure. In many instances people have reasonable cause for their failure to file, and this reasonable cause can result in the abatement of penalties and interest at both the IRS and FTB levels. In fact, if the IRS throws out the delinquency penalties the chances are good that the FTB will throw them out, too.
The client has to do his or her part. The first step in getting help and relieving the stress and sleepless nights associated with the failure to file tax returns is to pick up the phone and call for an appointment with a tax professional. In our office we know what to do in these types of situations. We have experienced accounting firms we work with to see that the tax returns are efficiently prepared and filed.
Most people who elect to come forward and file their delinquent returns will owe the IRS and the FTB. The IRS is now highly structured to deal with late-filed returns. A series of bills are sent to our clients. If the clients can pay what they owe they are encouraged to do so and get the tax liability out of their lives. Refund claims can be filed for the abatement of penalties. On rare occasions abatement claims can be filed to lower the daily compounding interest charges.
If you owe the IRS and FTB but cannot pay there are several avenues open to you that should be considered. For example, in these tough economic times your tax liability might be declared a financial hardship. If so, both the IRS and FTB may suspend any collection efforts for several years. The IRS has a Collection Due Process (CDP) procedure that will allow you to meet and confer with an independent Settlement Officer who is trained to work out a mutually beneficial solution to your unique individual situation. While you are in the CDP process, the IRS prohibited by law from taking any enforced collection action against you. You may be given a workable installment payment agreement or even an Offer in Compromise that will allow you to pay pennies on the dollar as payment in full as well as remove any tax liens. The FTB also has an Offer in Compromise program.
It is important for the client to feel that he or she now has control over their tax problems instead of having the tax problem control them. Once we show our client that he or she is now in control of what once was a tax nightmare the relief experienced cannot be put into words. You too can experience this type of relief without the fear of going to jail because you have not filed your tax returns. But you must take that first step and ask for help.
An EDD lawyer, Robert Schriebman has a successful practice in the Rolling Hills Estates area of Los Angeles County serving clients throughout California and the United States.
As a trusted EDD attorney, Robert S. Schriebman has successfully dedicated more than 30 years to helping individual taxpayers, business owners, CPAs, Enrolled Agents, and tax attorneys navigate the complicated tax systems of the federal and state governments.
Robert Schriebman has written over 20 books including the major manual used nationally by practitioners and the IRS, “IRS Tax Collection Procedures – A Manual for Practitioners” published by Commerce Clearing House and the only 2 books ever published dealing with how California Employment Development Department (EDD) operates. See “California Tax Collection Practice and Procedures” and “California Taxation Practice and Procedure”, both published by Commerce Clearing House.