When we meet with clients who need unfiled tax return help, they often fall into three main categories.
The first type of client is the self employed person who due to financial difficulties was not able to make their estimated tax payments during the year, and when it came time in April to file their return they did not have the money to pay the taxes, so they decided not to file. While this is very understandable situation, after doing this for many years creates significant legal issues. The second type of client is the employee who modifies their income tax withholding so its very low, and then does not file their annual income tax returns. Obviously, when the IRS finds out about this, they force the client to have the correct income tax withholding taken out of their pay. The third type of client either is a procrastinator who just did not get around to filing their income tax returns, or the client had a traumatic event in their lives (a death, divorce) and this event caused them to fall behind.
The good news is that under the tax laws, and procedures applied by the IRS, it is very rare that any of the above client situations results in criminal charges for tax fraud or tax evasion. As a tax lawyer, I do see the State of New York prosecuting these cases much more frequently, but often we are able to get them reduced to misdemeanors (instead of a felony). Therefore, in most cases the solution to this tax problem is to negotiate a tax settlement with the IRS and State you live, and file the tax returns that are unfiled. When a client needs unfiled tax return help, what they really need is a way to pay the back taxes owed in an affordable manner.
Based upon the client’s financial status, I have found the IRS to be very fair in creating affordable tax payment plans. The State of NY tends to be less flexible, and typically wants the tax owed paid back in 60-72 months. Both the IRS and NYS also offer a method to compromise the tax debt, and based upon your financial status it may be possible to settle for much less than what you owe through an offer in compromise.