19 May I haven’t filed a tax return in five years
Q. I haven’t filed a tax return in five years. I know there are amnesty programs from the government — sometimes. Are there any going on now? Should I work with one of those companies you hear about on the radio that say they can lower my tax debt?
A. We’re glad to know you want to get things right.
Your first step is to hire a competent certified public accountant (CPA) to prepare your past due returns.
Once each year’s returns are completed, you will then know how much back taxes you owe to the federal and state governments, said Gerard Papetti, a certified financial planner and certified public accountant with U.S. Financial Services in Fairfield.
You should then develop a strategy on filing the returns and paying the back taxes.
“Depending on your ability to pay, you can establish a payment plan with the IRS and the state and pay the related taxes with interest over time,” Papetti said. “Note that you will be subject to both a late filing penalty and a late payment penalty.”
If you do not have the ability nor the assets to pay the back taxes, the IRS offers a program called Offer in Compromise, Papetti said. This can reduce the outstanding tax debt to an amount that you can afford to pay.
In order to be eligible for Offers in Compromise:
1) All tax returns must be filed.
2) You cannot be bankrupt or going through a bankruptcy proceeding.
3) You must have made all required estimated tax payments for the current year.
4) You must have made all required quarterly federal tax deposits if you are a business owner with employees.
If you meet the requirements, will then need to complete Form 656 and either 433-A (wage earners and self-employed individuals) or 433-B (businesses), Papetti said.
“Form 433 requires that you divulge all of your financial information, assets including retirement accounts, liabilities, income and expenses,” he said. “The IRS will then have the information necessary to work with your CPA to agree on the balance owed and the payment plan.”
Papetti said the IRS generally approves an Offer in Compromise when the amount offered reflects the most the IRS can expect to collect after it has examined all of the taxpayer’s financial information.
If you voluntarily file your tax returns, the IRS and state may be more lenient with regard to potential penalties being reduced or abated, Papetti said. If the governments seek you out, they are usually less willing to reduce or abate penalties.
As for tax amnesty, neither the feds nor New Jersey have a program at this time for personal income taxes, Papetti said.
“When the IRS or New Jersey announces a tax amnesty program, it provides instructions on how to participate, which usually involves sending an initial letter declaring the amount of back taxes owed,” Papetti said. “You must then submit to a verification process whereby the IRS or New Jersey attempts to determine if you are reporting all of your income. If verified, then you will be accepted into the program.”
As for those companies you hear advertising on the radio? Papetti said that’s no slam dunk.
“The companies you hear advertise and offer to reduce tax debt will have to go through the same process a CPA will go through to file back taxes and develop a strategy to pay,” he said. “Seek the help of a qualified CPA.”
Email your questions to moc.p1606978609leHye1606978609noMJN1606978609@ksA1606978609.
This story was first posted in May 2015.NJMoneyHelp.com presents certain general financial planning principles and advice, but should never be viewed as a substitute for obtaining advice from a personal professional advisor who understands your unique individual circumstances.