It is important to remember that the IRS does not punish primarily for non payment but rather for non filing. The penalties for failing to file a tax return are 10 times greater than the penalty for non payment. That means the IRS is more interested in getting a paper return than paper money.
Most people fail to file because they don’t have the money to pay the tax. That’s like putting your head in the sand to save you from the IRS lion. If you file your returns on time you will save yourself lots of penalties and the IRS is much easier to work with if you have been filing each year. Once a client has failed to file for one year, the average client does not seek help until six years later. Why? Because it usually takes the IRS that long to levy their wages and/or bank accounts. If the IRS was much more aggressive and competent, clients would save thousands of dollars in penalties and interest.
If you have lost your records or they were destroyed in a fire or flood, it is possible to reconstruct the returns. The IRS keeps track of W-2 information, interest and dividends paid, home mortgage interest, sales of stock and any K-1 and retirement income information. Banks can provide copies of old bank statements and checks. With a little effort, most returns can be reasonably reconstructed. We always attach a note to the return explaining how we arrived at the numbers reported.
If absolutely no information is available, there is still an acceptable way to file your returns. This is based on economic reality. We have a worksheet that determines how much you had to make to pay your bills every month. We can file a return based on estimates if the estimates are reasonable.
Scott Allen E. A.
Tax Debt Advisors, Inc.