How can this happen? How can someone not file taxes in 30 years?
The answer is easy. You’ll do it tomorrow. And after you’ve had about 10958 tomorrows that adds up to 30 years. And then you are are able to say, yeah that 1985 tax return? Yep. Still unfiled. And so is every one since then. Procrastination is incredibly easy to achieve, but sort of difficult to live with.
When you can’t procrastinate any more.
Now something that pulls people out of their procrastination is when the IRS files a return for them. This is the Substitute Filed Return. The IRS will cobble together all 1099s, W-2s and other third party tax reports to prepare your return for you, usually the taxes will be higher than if you filed your return yourself. If you don’t explicitly disagree with what the IRS says you owe, the IRS will attempt to collect that amount you. Now when the IRS starts enforced collections with levies, liens and garnishments, this could finally be the straw the breaks the procrastinators back and compels them to overcome their fear and get to work on the problem.
But not everyone who gets an SFR gets the message. Some don’t think there is any solution, and some will do more work to frustrate the IRS by never having anything in their name.
And that was the situation of the stone mason I met with. He took care to make himself fairly uncollectable. From anyone. That means all his assets were in his girlfriends name, and he used a bank account for his business sparingly. He actually didn’t know if the IRS filed an SFR's against him, as he was keeping such a low profile, there was actually no way for the IRS to send him mail that would ever reach him. All it took him to avoid the IRS for 30 years was a willingness to live like a 3rd class citizen. And it was the regret of living for 30 years as a 3rd class citizen, that brought the tears out.
So I was thinking he had enough of this, so I asked “Ok then you ready to get started?”
He paused. Looked anguished he said “No. I am just a screw up. Who wasted the last 30 years of his life. I am happy to know there are people like you in this world, but I don’t deserve to feel better. I am a complete screw up. Thank you for your time.”
Some people have accused me of being the most persuasive person in the world. I’m really not. What I am good at is picking my spots. I know there are situations where there is no persuasion that can bring someone over. I only attempt to persuade when I am confident that the person is ready for the message. I could tell he wasn’t. So I said please take my card and I hope you reconsider.
He never called.
Will you go to prison for years of unfiled tax returns?
Anytime you are breaking federal law, you are really increasing your chances of prosecution. The US Department of Justice will prosecute those with unfiled returns, but the chances are that they won’t, unless you are doing something else or you are just too big of a fish to ignore.
Now a big fish isn’t necessarily that big of a fish. For the IRS, a press release is what they want. If you’ve made $100,000 for the last 10 years, and are unfiled, you are definitely getting into the area of a big fish — the IRS can truthfully say in a press release, you did not report over a million dollars of income. And for the average juror and the public at large, there is little difference between a million and a billion. Of course there’s a huge difference, a million is a thousand thousands, and a billion is a thousand millions. Regardless, the perception can be that you’ve been living the high life, all while not paying taxes nearly everyone else is paying.
But even if you do come under investigation, there is always something you can do to protect yourself. File your returns ASAP! I don’t understand this paralysis that comes over people once they are under criminal investigation. These should be the people working the hardest and quickest to get a problem behind them. But instead they are often advised to “sit back” and “wait” to see what happens.
Well I am pretty sure I know what could happen if you don’t fix a huge problem that you know that you can be indicted for. Hint: It rhymes with indictment. Wait. No. The word is indictment.
Why you SHOULD NOT File ALL Your Unfiled IRS Tax Returns/How many years should I go back?
You will see different answers to this question. Because here is the inherent tension. Filing fewer returns could create criminal or audit exposure, filing too many can slow down resolution and you can wind up paying more than you should have.
Some will give blanket rules, filing three, six, ten, or even back to the beginning. We look at each case one at a time. While the IRS’s policy is six years back, there are times when following this rule can create more problems than it solves. We’ve done more, we’ve done less. This is really an area where getting a professional opinion could save you a lot of money and headache.
Refunds rule benefit the IRS
If you don’t file a return, the IRS could assess you for those taxes at any time in the future. Our stone mason with that 1985 return? The IRS could file a SFR for him today! And would add in penalties and interest.
However, if you are owed a refund, you have a limited amount of time file a return to claim that refund. The general rule is that you must file your refund claim three years from when the return was due – extensions count, or two years since a payment that you seek a refund on. If you are a day late, you will likely be completely frustrated from claiming a refund. The US government will keep your money even though they know you can prove you are owed that money. 100%. The IRS can assess forever, but when you are owed money, you have a small window of opportunity. Does this sound fair? Let me know what you think in the comments below.
What causes people to procrastinate?
In my business, procrastination is perhaps the top number one issue we have to deal with. The people who meet with us know they should do something, they know we are competent in our works, and know that the sooner we get to a problem the liklihood of a favorable outcome increases. But all too often, something else gets prioritized and the tax issue is ignored.
Based on my observations, I have developed a theory that explains how procrastination works, and a possible solution.
Procrastination is caused by being overly concerned about possible negative reactions of others to an action you take. That a proposed action might reveal something about you that doesn't make you look so good. For instance, if you don’t get on that scale, you can’t possibly be overweight, right?
No doubt, it can feel easier to believe a myth than the confront the truth. People are afraid to confront the truth because they are convinced acting on the truth will make them look like fools or worse.
Here’s some examples:
- You don’t call the doctor when you come down with a venereal disease because you are afraid of what the nurses will think of you.
- You don’t bring your car in for brake service because the interior is in shambles. You are worried about what the mechanic will think of you.
- You don’t call for tax help because you are afraid you will be harshly judged and humiliated with hard questions about some of the bad decisions you made.
In each three situations, it is the fear of potential judgment of people whose express purpose is to help you that is keeping you from a better life. In each of these three cases, if you choose procrastination you are making a self-destructive declaration: The opinion of others is more important than your own safety or well-being.
I am hoping this is starting to sound a little absurd to you. This is the only life you get, and yet so many are saddled with a toxic belief system that elevates the potential opinions of others to the highest position. Well what if you could wave a magic wand to make it so that whatever other people thought about you was none of your business?
But it actually doesn’t take a magic wand. Just simple realizations. You’ve made snap judgments about others without knowing the first thing about their problems, so of course it make sense that you would assume others would make snap judgments about you. So this is why I believe the key to ending procrastination is to stop making those snap judgments of others.
As once you do, you’ll find yourself less concerned about others are making snap judgments about you. You’ve heard this before. The cliché – What comes around goes around. And from the Bible, Hosea 8:7 to be exact, “Reap the wind, sow the whirlwind.”
Once you fully understand that judging others earns you nothing but a miserable shallow existence, you will no longer fear others judgments’ of you! Rather, you might imagine them to be in a bad place. They are in that bad, miserable place where the convential wisdom is that by judging others, some sort of personal relief will occur. But you know it doens't work that way. You will see through their folly so clearly, you might actually feel sorry for them! One you are free of the snap judgments, what is there to make fear a possible reaction?
Remember, you are not the first person in the world to screw up. In fact, screwing up is what humans do best. The ones that bounce back the quickest are successful because they don’t let their mistakes define every tomorrow. They don’t let a history of procrastination be the basis for additional procrastination.
And by the way, every professional who has been around — you really can’t surprise us with your “badness.” You really can’t surprise or shock us — while ever client is unique — the patterns that lead to problems certainly aren’t.
In this business if you do it long enough, yes, you will encounter a stone mason with unfiled tax returns, but you will also encounter foreign diplomats, IRS employees, attorneys, doctors, hedge fund managers, and multimillion dollar businesses with hundred of employees. All have with one thing in common. They really screwed up on their taxes and are in desperate need a real help.
The fact is that everyone who makes a dollar on their own usually ends up with some kind of a tax problem. Just don’t let it define your life. Contact us or another firm you trust. There exists an opportunity for happiness and it is your birthright. You just have to claim it.