Filing Unfiled Tax Returns Eliminates the Risk of Imprisonment

So going along the lines of the previous postings. The ones about not filing your taxes or reporting income or trying to falsely take deductions.

Section 7203 of the Internal Revenue Code permits the IRS to charge you with the “willful failure to file a tax return.” The statute subjects you to a risk of being guilty of a misdemeanor and a $25,000 penalty ($100,000 in the case of a corporation), and imprisoned for not more than one year. If the failure to file is “willful” the charge is a “felony” and the imprisonment is up to five years.

YOU ELIMINATE THE RISK OF IMPRISONMENT IF YOU VOLUNTARILY FILE YOUR TAX RETURNS, and payment of your tax liability.

Calculating a reasonable OIC offer amount

Aside from all the paper work, your reasonable collection potential should be approximated as follows:

* 100% of your cash, investments, and accounts receivable, plus
* the realizable value of your vehicles, real estate, and personal assets (minus allowances), plus
* your monthly disposable income over a period of 48 months or 60 months (depending on how you are going to make your offer payments).

New Congress, New Taxes

Since the recent change in Congress, there’s always been some inkling at higher taxes. Here are a few links indicating possible tax hikes. (House votes to link spending changes and tax shifts) and (How the budget got the way it did and what the new Congress may do to reverse that) Where will the tax hikes will be? We do not know. Most candidates would be to eliminate the tax cuts that the Bush Administration put in, or at the very least, not vote to not continue them. (One tax break in particular is the estate tax break deemed to end in 2010. We might think it all right, but don’t say that to the babyboomers heading into their golden years.)

“The lesson is that fighting a war, cutting taxes and funding a major new entitlement program all at the same time doesn’t work.”

“This is putting the American taxpayer on a collision course with higher taxes”

A good or bad thing? At the very least, the individual should always be planning ahead: business operations-wise, estate planning-wise, and investment-wise

No Money + No Job = CNC, typically

People who have tax liabilities, but have absolutely no assets to leverage, cash to pay, and no job, will be considered “Currently Not Collectible” (CNC) by the IRS. They won’t know you’re CNC qualified unless you prove your status to them. This status is definitely a god-send for those who need a little breathing space from the collection activities of the IRS. Mind you however, interest penalties will still accrue against your account while in CNC. What’s interesting is that the Collection Statute of Limitations is still running (rather than being tolled during any court proceeding), which means that once the statute runs, the IRS cannot collect for the liabilities assessed for that particular year’s liabilities. The CNC status usually expires when your financial situation improves.

The funny thing about being under CNC is that it is not an OIC or “Offer-in-Compromise”. An OIC, like an Installment Payment, is an agreement made between you (the taxpayer) and the IRS concerning how you will pay your tax liabilities. An OIC is usually less than your total liabilities, while an Installment Payment is a payment plan for all of your tax liabilities. An OIC, therefore, has a difficult set of criteria to abide by. The main unspoken rule that separates an OIC and an CNC is whether you have a job or are retired.

Other options? If you have no money and want to be cleared of your liabilities (rather than being CNC) but do not qualify for an OIC, you could attempt a filing of bankruptcy. However the laws have changed for bankruptcy back in 2005, making the process more difficult for filers.

In the end, as a note, just because you’re on CNC does not mean you’re out of the woods yet.

Crack Down?

These drives are less a crack down and more like higher efficiencies made by the IRS. With the coming age of information technology and the prevalence of updating and amending tax regulations over the years, it seems like the IRS is more able to analyze returns. Which unfortunately translates into taxpayers should be on the ball to report their income. It’s tough. The IRS is like a business. With technology and efficient procedures, they get better. As individuals and businesses, we too have to step up our abilities in reporting both being on time and being accurate.

• Audits of individuals with income of $1,000,000 and higher increased to 17,015 from 12,835, a nearly 33% increase in just one year. About 1 in every 16 of these taxpayers faced audits last year. If you’re earning that kind of money and they notice a problem, you’re going to hear from the IRS.
• Audits of individuals with incomes over $100,000 surpassed 257,000, an 18% increase from 2005. That’s the highest figure in more than a decade, and well over double the 92,000 completed in fiscal year 2001.
• Audits of S corporation returns increased to 13,984 from 10,417, a 34% increase. This is the highest level since 2000.
• For partnerships, audits of these flow-through returns increased to 9,777 from 8,489, a 15% increase. This category is at the highest level since 1998.
• Audits of small businesses organized as corporations remained about the same. 17,871 audits were completed in 2006, up slightly from 17,858 in 2005.Both of these figures are more than double the 7,294 audits of small businesses in 2004.
• Audits of larger corporations (those with assets over $10 million) dipped by 2.2%, to 10,591 from 10,829 in 2005.While down slightly this year, audits remain up nearly 50 percent from 2003.