It is our job to educate the taxpayer on their rights and how their specific current situation fits into the available IRS resolutions. It is not always pretty. It is many times not what they expected. It may take different “tools” in your toolbox to get the job done. We know the IRS can collect; this fact alone is why you are here today. The client has an unpaid IRS debt which they cannot pay. We must also look at what returns are unfiled as well as current tax obligations. Compliance has two elements: unfiled returns and estimated payments. No matter what else happens, there can be no resolution if the taxpayer does not identify the reason for the non-compliance and fix the problem. Without current taxes being paid for the current year or quarter, any payment plan or Offer in Compromise will in fact default. The client will blame you for this result, unless you educate them on this cycle.
For the non-filer client, regardless of the number of years, secure the last six years of 1040’s. Additionally, you will want to prepare the 1040’s that have been prepared as SFR’s by the IRS. Please understand, I feel it is my job to inform the taxpayer of the IRS Policy Statement which I cite below, with the additional information to the taxpayer that if they wish to file all the missing periods, I will gladly prepare those 1040’s for a fee. The law is they must file (we just so happen to know the “insider” IRS guidance to their staff). The IRS can always ask for any missing return. I feel this six-year policy relates back to the fact that Congress allows an audit six year look back if the taxpayer has not declared 25% of their income. The IRS just runs with it.
Client Experience: I had a tow truck driver, non-filer client. When I interviewed him, he had not filed for 19 years, but the IRS had only filed 2008 and 2009 as SFR’s, using the 1099 IRP, allowing no Schedule C expenses. He owed $388,540 for those two years alone. We filed 2008, 2009 and 2011-2016 (the last 6 years). His current assessments were reduced to $89,057 and he owed various amounts for 2011 through 2016 (another $110,000). We then got him making monthly 1040ES payments and submitted an IRS OIC for the eight years of tax liabilities.