The deadline to file federal and state income taxes is Monday, April 15. And those who have not filed, or may not file for whatever reasons, may be suffering from self-induced condition known this time of year as the “April Panic.”
Climb down from that ledge. While the Internal Revenue Service is strict about its deadlines and can impose penalties, liens and other sanctions for unpaid taxes, the IRS may be more willing — even compassionate — about your tax situation than you realize, according to tax attorney Steve Moskowitz.
“Usually people don’t file taxes because they didn’t have the money to pay it,” said Moskowitz, a 30-year attorney who is based in San Francisco. “The first year they don’t file a return, then year two rolls around and they think how can they file in year two when they didn’t file in year one. They fall down a rabbit hole and it becomes a way of life.”
Spiraling out of control is avoidable, Moskowitz said, because there are “good” alternatives.
You can make a deal with the government through an offer and compromise. There are three basis for this type of deal: you have no income or assets, the most common reason. “There can be doubt as to collectability, i.e. you’re working a minimum wage job with no assets but somehow owe $100,000 in taxes,” Moskowitz said.
Next would be doubt as to liability. The IRS says you owe $50,000 and you say you only owe $10,000 and you can show proof as to why.
A third alternative is compassion. And IRS officials could show compassion for those who are very sick and need their limited funds to pay for a medication not covered by insurance. “It could be simply unfair to demand a payment,” Moskowitz said.
He said the IRS is also willing to work out payment plans for delinquent taxes, within reason.
“You should always pay them what you can,” Moskowitz said. “Say you do your taxes, and you owe $30,000 but only have $10,000. You may be able to [negotiate to paying the rest] over a number of years.
“Another area that is a great one is ‘penalty abatement.’ The IRS computer automatically puts penalties on you [for late or non-payment]. You can ask them to forgive the penalties. An example would be illness for the taxpayer or the taxpayer’s immediate family. Say you couldn’t file your taxes because you were in a coma. That’s an extreme example. But what if someone [is diagnosed with] cancer and forgot to pay their taxes while trying to save their life? It’s grounds that they will consider.”
However, don’t be surprised if the IRS demands you show proof of your health claims — as in doctor’s notes or medical records.
When asked about companies or businesses that claim they can get your taxes lowered or forgiven, Moskowitz advises people to listen carefully to the message being presented.
“I had a case where a man was making $600,000, when he lost his job and became a $24,000 a year cab driver. And he didn’t have to pay tax on the $600,000 earnings. A deal was made to pay tax on his $24,000 earnings. But if you take it out of context (of how the deal was made), the results would seem incredible.
“If you just say ‘this guy owed tax on a large number and the case was settled for a small number’ — and not say it’s because he was making less money now and able to pay the tax on that — it’s like saying last Friday night you beat the heavyweight champion and forget to say the champ thought the fight was Saturday and didn’t show up. The way to pay a rockbottom legal minimum is to have good legal knowledge and assert that knowledge. It’s not some magic.”
Whatever explanation you present for being late with or not having paid your taxes, Moskowitz said you must “present a factual case” of your tax situation.
“Making a false statement is a felony. And they really will prosecute you for that,” the attorney said. “It could mean jail time with whatever else they take away.
“You always want to be honest. But you also want to be an advocate, too. The bottom line is you may have a situation where you can negotiate something. The world’s not perfect…things happen. And what you have to do is truthfully plead your case.”