According to a report published in May 2020 by the Treasury Inspector General for Tax Administration, the Internal Revenue Service (IRS) was aware of the identities of more than 10 million tax evaders, many of whom are regarded as high-income earners, but was not making sufficient efforts to track them down.
The Internal Revenue Service has responded to the problem by becoming more stringent in its enforcement against non-filers.
As part of this response, the IRS has filed an automated substitute for tax returns against many of these taxpayers using information from third parties, such as a W-2 or 1099.
When the Internal Revenue Service does not have this information, it will pursue clients by conducting in-person audits.
In addition, because it has been determined that there is a continuing cause for concern regarding a lack of enforcement against high-income individuals, the Internal Revenue Service (IRS) is now taking a more direct approach to compliance.
They are employing revenue officers to go to taxpayers’ homes and collect the information necessary to determine their tax liability.
How can you best come back into the tax system while avoiding anything particularly unpleasant, such as a criminal referral, if you are one of those people who do not file their taxes?
Should you simply file the income tax returns, and if this is the case, how many years’ worth of returns do you need to submit?
Is it a preferable choice to make a request to participate in the voluntary disclosure programme offered by the Internal Revenue Service?
You must explain the circumstances surrounding your failure to file, including how you have been making money.
To be considered compliant with the Internal Revenue Service’s Policy Statement 5-133, a taxpayer is required to have at least the most recent six years’ worth of tax returns submitted with the service.
This would entail filing tax returns for the years 2015–2020 and ensuring that the 2021 deadline is extended for taxpayers today.
Alternately, for a taxpayer to be in tax compliance, it would be sufficient for them to have submitted returns for the years 2016–2021.
The Internal Revenue Service has its own set of regulations, which may or may not align with those of certain states.
Should one participate in the voluntary disclosure programme or simply file the taxes that were missed? If the taxpayer is capable of preparing proper tax returns and their failure to file was not done to defraud the government, then just filing those forms with the service is typically the best and least expensive choice.
However, some taxpayers might not have records or who, as a result of their conduct, would not be able to comply with the requirement of completing a correct return.
The Voluntary Disclosure Program offered by the Internal Revenue Service is often the most beneficial choice for these individuals.
A taxpayer can help resolve their tax problems by coming forward to the Internal Revenue Service (IRS) with voluntary disclosure and delivering tax returns that are in compliance with applicable regulations.
Taxpayers are eligible to take part in the voluntary disclosure programme if their income comes from legitimate sources, they are not the subject of an audit or investigation by the Internal Revenue Service (IRS), or if they are the subject of an audit or investigation by the IRS but the disclosure has nothing to do with the pending audit or investigation.
To qualify for voluntary disclosure, a taxpayer must agree to the following conditions: file accurate returns and correct all other inaccuracies (within the last six years only); cooperate with the assigned IRS examiner; pay a 75% civil fraud penalty on the tax year with the largest balance, and make good-faith efforts to resolve the outstanding balance in full.
In return, the Internal Revenue Service (IRS) will normally agree to refrain from referring the taxpayer for criminal prosecution.
A taxpayer should participate in the voluntary disclosure programme if they are unable to file an accurate tax return or face the possibility of criminal prosecution.
These can include people who intentionally try to avoid paying taxes by not correctly reporting their income.
People who have household workers or other employees who are not on the books and who are unable to file accurate tax returns because they do not have the amounts paid to their employees or the true Social Security numbers of the people they employed are sometimes included in this category as well.
Before presenting the IRS with all of their information, taxpayers can get a head start on the process by participating in the IRS’s voluntary disclosure programme.
The taxpayer is not permitted to make a voluntary disclosure if the IRS already has information about the taxpayer’s non-compliance, and it is impossible for taxpayers to truly know what information the IRS has about them.
However, taxpayers are not allowed to make a voluntary disclosure if the IRS already has information about the taxpayer’s non-compliance. The first thing you need to do to get the pre-clearing process started is to send in Part 1 of IRS Form 14457.
During the time that pre-clearance is being processed, the taxpayer must prepare their books and records, and, if at all feasible, their amended tax returns. Assuming the taxpayer is eligible for the voluntary disclosure programme, they will be required to send the Internal Revenue Service (IRS) Part II of Form 14457.
This portion of the form includes specific information regarding the tax issues as well as an estimate of the amount of back taxes that are owed.
An examiner will be appointed to work with the taxpayer, evaluate their amended forms and information, and accept the taxpayer’s file after the IRS has completed their evaluation of Part II of the tax return (or not).
Any taxpayer who is thinking about making a voluntary disclosure ought to be aware of how important it is that the process be completely open.
If the taxpayer is dishonest or does not cooperate with the investigation, the disclosure may be rejected, and the taxpayer may be reported to the appropriate authorities for prosecution.
It is important to keep in mind that the majority of states have their own voluntary disclosure scheme, the management of which might differ greatly.
For example, non-residents of Massachusetts are required to file tax returns for three years, whereas residents are responsible for filing taxes for seven years.
The minimum age requirement in New Jersey is merely four years, regardless of residency. Taxpayers and the specialists who advise them should look into the programme offered by their state to learn what needs to be done and how many years of returns need to be submitted.
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Taxpayers must work to remedy any tax issues they may have, whether it be through the preparation and submission of appropriate tax forms, or through the submission of a formal request to come in under the voluntary disclosure programme.
There is a fee associated with preparing tax returns and resolving tax debt, but the cost of getting caught by the government may be far more than the cost of complying with their demands.
