If you practice as a tax practitioner for any length of time, you will undoubtedly encounter taxpayers who have not filed tax returns for multiple years or terms. While some tax practitioners are quick to pass on this type of business, it’s actually quite lucrative for those who are up for the challenge or willing to consult a trusted tax relief specialist with the experience to handle the complex case.
If you’re a tax practitioner who is not the most comfortable with guiding a non-compliant taxpayer back into compliant status with the taxing authorities, then you will be interested in learning some of the best practices for handling these seemingly complicated cases, and we’re breaking it all down here.
Let’s get to it!
Benefits of Taking on Non-Filer Status Clients
Proprietary Tax Software/Programs Make Light Work of Filing
When tax practitioners find out their client or prospective client has a lengthy non-filing status history, they often think it’s just too much hassle to take on the work; however, don’t be so quick to pass up the opportunity to help them file tax returns (even many). It’s not as time-consuming as you might think.
Filing multiple iterations of tax returns at once using a very helpful tool, professional tax software. This can be done rather quickly, starting with the oldest year’s federal tax return and rolling the return forward. Before you know it, you will be done.
Here’s where the benefit of helping a client file tax returns comes in–you can collect up to 6 years of preparation fees at once! This is an especially nice benefit when this type of work knocks on your door during the inevitable slow season for tax practitioners, allowing more capacity to handle such matters, and making the extra income even more meaningful!
[H4] Where to Find an Influx of IRS Non-Filers
Unfortunately for taxpayers, but fortunately for tax practitioners, you won’t have to hunt to find non-filers in need of assistance to get out from under the crushing weight of the IRS.
With the tax gap measuring $496 billion and IRS receiving massive additional funding from congress, you can be assured that they soon will be identifying non-filers to force into compliance. These non-filers are going to be coming to you and your competitors for help! So, how do you help them? We’ll talk through that next.
Phases of an IRS Non-Filers Case
Remember how we mentioned the ease of this seemingly complicated work? It’s literally as easy as 1-2-3.
Your non-filer client’s case will be accomplished in just 3 phases.
1. Research the taxpayer’s IRS account to identify and verify any non-compliance issues.
- Create a strategy to remediate all of the non-compliance issues.
- Deal with the delinquent tax debt, of which most are unable to pay multiple terms in full at once. More on that in a moment.
Research and Verify Missed Filings
To research the taxpayer’s account, you will need to be authorized to access the account data. There is a simple one-page form that you will need the client to sign – IRS form 8821 Tax Information Authorization. We typically get authorized for the last 10 years plus the 3 future years, in addition to the current year. For instance, if we are in the year 2023, we’ll set up our authorization in section 3(c) for the range 2013 – 2026.
Tax compliance cases often take more than one year to remediate completely so we make sure to have the future terms authorization from the start. 3 years in the future is the furthest out that IRS will allow.
8821 vs. 2848 Power of Attorney authorization is a complete sub-topic here. Our preference is to get 8821 authority to conduct a full investigation, then file a 2848 if we decide to take the case. This limits our professional liability until we find out exactly what the issues are to be handled. If there is any indication of fraud, we immediately refer the taxpayer to an attorney without ever exposing ourself to professional liability.
Once the taxpayer signs/dates the completed 8821 form, you need to file it with CAF (Centralized Authorization File) to have your authorization processed. If you don’t have an e-services account, you will need to fax the form to one of two places, depending upon where you practice.
See the 8821 instructions to determine if you need to file in Memphis, TN or Ogden UT. CAF will process your authorization in about 3 weeks if it is faxed in, but if you file it electronically via e-services the authorization is processed within a few days if not immediately.
It’s not necessary to wait for the authorization to process before you call Practitioners’ Priority Line to perform the compliance check. Just have the signed 8821 form handy and you can fax it over to the assistant who answers. In just a few minutes, you will be authorized and can begin the conversation with IRS to gather information.
What Questions to Ask
- The first thing you need to ask for is what years are their unfiled returns.
- Next, ask if there is an extension on file for the current year.
- Ask if there are any time periods with delinquent balances.
- Ask for the collections status to determine if the taxpayer is under imminent threat of levy;
- Then, ask for the Revenue Officer assigned to the case if any.
- Ask for the most recent notice and if there are any deadlines approaching.
- Finally for the time periods unfiled, you will need to get a copy of the wage and income transcript.
- For the time periods with balances, you will ask for an account transcript.
Use a call sheet template to document the call so you just need to fill in the blanks as PPS gives you the information verbally. The transcript copies and completed call sheet go into the client’s case file. We’re glad to share a call sheet template with you – just let us know you need it by reaching out to us via email at firstname.lastname@example.org, or you may call or even text us at 985-855-4787.
Since we do this so often, we use professional software which electronically downloads all of the taxpayer’s transcript data through our e-services account. We are able to get decades of data in just a few seconds, then the software organizes the data into a meaningful report. We just review the results and then strategize. If you will be doing lots of this work, the software is a must-have.
Strategize for a Re-Established Compliance Status
Now that you have all of the data, next you need to figure out the most favorable way to get the taxpayer’s current compliance re-established. That’s the goal – current compliance. Current compliance means that all of the required returns are filed AND the taxpayer is paying the current year taxes as they become due.
You may not have to file all of the unfiled returns to get the filing compliance established. For instance, if there are one or more unfiled terms that the taxpayer’s income is below the filing threshold – those don’t need to be filed (unless it is necessary for refund or penalty abatement purposes).
Also, IRS has a six-year enforcement rule: If the taxpayer files the most recent 6 years of tax returns, then filing compliance is assumed to have been met, regardless of how many prior returns are unfiled. If more than 6 years are to be enforced, then managerial approval is required. See IRS policy statement 5-133 found in IRM 18.104.22.168.18(5) for more information. So, determine what terms need to be filed for re-establishing compliance and get to work on those asap.
Now, regarding paying the current year’s tax as it becomes due there are two considerations. One is for W2 employees – that requires proper withholding of tax is occurring. An updated W4 may need to be completed and submitted to the employer(s). The other consideration is for self-employed taxpayers who need to make quarterly estimated tax payments.
For the current year, all of the required estimated tax payments must be deposited with US Treasury. Of course, this is much easier to do in the beginning of the year but what if its already October? There are 3 quarters of estimated tax payments due that likely have not been remitted. If the taxpayer is unable to pay all of these at once, then you need to plan accordingly. Depending upon the urgency of the case, if we know a taxpayer will be unable to catch up on the current year, we have them start making deposits or saving for the next year.
Once January comes, we can file the tax return for the year just ended and the “next year” deposits the taxpayer has been making now have them all caught up – current compliance established. In these instances, clear communication and co-operation between you and the taxpayer is crucial.
Deal with the Delinquent Debt
More often than not, once all of the returns are filed and processed there will be substantial unpaid delinquent tax debt along with penalties and interest. Once the filing compliance is re-established, the taxpayer becomes eligible for many options to repay the delinquent tax debt. The most common remedy is a formal installment agreement that allows for repayment of the debt via monthly payments over 84 months.
If the taxpayer is in dire financial condition with only the means to maintain the basic health and welfare of the family, then ask IRS for the taxpayer to be classified as hardship status currently non-collectible (CNC). While the taxpayer’s hardship continues, no payments are required to be made towards the delinquent debt.
CNC status also protects the taxpayer from forced collection tactics like bank account seizure, income garnishment or asset levy. IRS continues to assess penalties and interest to the delinquent debt during the entire time CNC status is active. But for taxpayers in financial hardship, having protection from forced collection tactics without having to make monthly payments is substantial relief. Once the hardship is over, the taxpayer will have to make arrangements to repay the debt.
Assume that the taxpayer with delinquent tax debt is in hardship status and is not reasonably expected to ever recover. If the hardship is permanent, then IRS will consider compromising the debt for less than the full amount owed. If IRS knows there is very low reasonable collection potential, then they will likely settle for less than the full amount owed. This is most commonly known as an offer in compromise (OIC).
These OICs are accepted all the time, but the taxpayer will have very limited equity in assets and little or no income. We don’t care what you hear on the radio or on late night TV commercials. If the taxpayer has means to pay the delinquent debt, then expect they will be paying up.
Non-Filer Relief Programs
There are other legal means to deal with the delinquent debt including bankruptcy. Often bankruptcy is the fastest and most cost-effective method of relief. There are some very complicated calculations to perform to determine if the debt is eligible for discharge through bankruptcy. Although beyond the scope of this article, it is imperative that practitioners be aware of the option to avoid a professional liability issue. Advise your client of the bankruptcy option, then document the case file that you did so.
[H2]Trusted Guidance for Tax Practitioners and Their Non-Filer Clients
Tax Crisis Rescue often works with tax practitioners who don’t have the time or inclination to deal with IRS. While they prepare and file the tax returns, we work on the other ancillary issues with IRS. Also, if the non-filer comes in under threat of levy or seizure, then the case needs to be dealt with quickly and decisively. We can help with those cases too and often prevent the forced collection activity from their bank account and assets altogether.
If you find yourself faced with a multi-year non-filer, consider taking on the work! One new non-filer client comes with up to 6 years of fees for you to collect. Again, it is quite lucrative, and we would be glad to help. Call/text 985-855-4787 or email email@example.com to get in touch with me.
For more information about what we do at Tax Crisis Rescue or the types of clients we help, please visit taxcrisisrescue.com.