The simple answer as to why Wesley Snipes will soon begin serving a three-year sentence for tax evasion is that he didn’t file his tax returns for 1999 through 2004 and also tried to get a $7 million refund in 2006 on returns filed before he stopped filing in 1999. The broader answer is that in 2010, the IRS has more sophisticated resources, more personnel, and more incentive (nearly $345 billion owed to the federal government, which has a budget deficit in the trillions) than ever before to track down non-filers. In 2010 and beyond, if you fail to file your tax returns, chances are exceptional that you will get caught.
“What non-filers do not realize is the IRS will prepare a Substitute For Return (SFR) for you if you don’t file a tax return yourself. Only that SFR will not have the vast majority of the deductions you might be entitled to had you filed on your own,” said Matthew J. Previte, CPA, a local taxpayer advocate expert and owner of TaxProblemsRUs.com. “So, if you don’t file a tax return for several years like Mr. Snipes, the IRS has the technology to prepare an SFR for you and then will start burying you with severe penalties and interest based on that grossly inflated SFR assessment.”
Fortunately for non-filers, the IRS generally only looks back six years for unfiled tax returns. Yet without including all the deductions one might be entitled to, those SFR assessments can be grossly inflated due to that lack of deductions. The IRS can also utilize any number of resources to calculate income. For example:
- Bank accounts – IRS can track non-filer accounts and review your deposit and spending histories.
- Credit card spending – IRS can track overseas and domestic spending to prove income.
- Audits of payees – Often times the people non-filers pay for goods and services are audited and that can alert the IRS to the payer’s non-filing.
- IRS whistleblower programs – Does anybody else know you haven’t filed? An ex-wife or significant other? Perhaps a vindictive business associate? IRS whistle-blower programs raise the red flag and agents are more than happy to follow those leads.
So, with all the mechanisms available to the IRS to catch non-filers, why do people still not file?
“The reasons vary. Everything from bad advice from tax protestors and unscrupulous tax advisors to financial or health problems to even just plain old general neglect. Once one year is unfiled, fear and embarrassment most often perpetuate the problem, causing additional years to go unfiled. Some might even think if they don’t file, they won’t ever have to pay taxes. I’ve represented quite a few people who haven’t filed for 25 years or more,” said Previte. “The reality is, with the resources the IRS now has, non-filers will get caught and the punishment, if prosecuted and proven guilty like Mr. Snipes, is one year in prison per year you don’t file up to six years. If you’re lucky enough to avoid prosecution and jail time, the IRS will still bury you in taxes, penalties, and interest.”
Continues Previte, “The real irony about non-filers is that by filing their tax returns—even if they don’t have the money to pay the IRS—they have more options to resolve their tax debts than by not filing their tax returns.”
Some of those options include:
- Offer in Compromise program
- Payment plan
- Uncollectible status
- Penalty Abatement
- Lien Subordination
- Innocent Spouse Relief
“These are just a few of the scenarios where having a qualified licensed tax professional represent you—instead of pulling your bed covers over your head and praying you don’t get caught–can literally save you thousands of dollars and dramatically reduce the likelihood of prison time,” said Previte. “At the very least, it can lessen the stress and anguish that come with having tax debt hanging over your head and your family’s.”
For more information on TaxProblemsRUS.com, please visit www.TaxProblemsRUs.com. To schedule a free confidential consultation, call 877-259-8200.
About TaxProblemsRUs.com and Matthew J. Previte, CPA, PC
TaxProblemsRUs.com is the official Web site of Matthew J. Previte, CPA, PC, a Massachusetts tax firm representing individuals and businesses before the Internal Revenue Service and state taxing authorities in all 50 states. Based in Natick, Massachusetts, Matthew J. Previte, CPA, PC has been representing both individuals and businesses with tax problems for 22 years. To schedule a free confidential consultation, call 877-259-8200 or, for more information, visit www.TaxProblemsRUs.com.