Tax compliance is a legal requirement for taxpayers to timely file and fully pay the taxes that they owe to federal and state governments. A Form 1040, U.S. Individual Tax Return, is only required if the taxpayer has taxable income over the filing threshold based on their filing status, and is $12,500 for single taxpayers. The United States tax system is based upon voluntary compliance from all its taxpayers, meaning taxpayers are required to self-report and pay their taxes each year. Every dollar of tax compliance goes towards running this country, whether it is bridges, roads, Medicare, the military, et cetera.
A skilled unfiled tax returns lawyer could assess your situation and determine the safest way to come into tax compliance in Washington DC.
The IRS uses many tools to identify tax compliance errors and underpayments. The most common tool they use is computer programs to match tax returns with what was provided to them by third parties. For example, if an individual does not properly report income from a job, interest income, or sale of stock, then the IRS automatically compares the reported income with copies of the tax forms as reported from the bank or the employer. From that, they can quickly tell that that taxpayer underreported their income, and they will send out a computer-generated letter proposing an increase in the required tax.
If a Washington DC taxpayer ignores certain compliance failures or issues, the penalties and interest will continue to accrue and the IRS will move forward with enforced collections, which could include levies (seizures of properties or bank accounts, or wage garnishments) or liens, which is a security interest filed against a taxpayer for interest in assets such as a home.
The most common penalties that the IRS may assess against a taxpayer would be a failure to file a tax return and failure to pay a tax return. If the issue is as simple as a failure to file or failure to pay one time, a quick solution could be a first-time penalty abatement, which a person should be able to do on their own. A long-term issue with compliance may require careful evaluation from a tax lawyer.
A taxpayer can ensure tax compliance by timely filing and paying their tax returns every year, while also reporting all their income and filing all proper informational returns. Many taxpayers’ situations are fairly straightforward and could be dealt with through a variety of different types of tax software. Once tax returns get more complicated, they may want to hire an enrolled agent or a CPA to help them with their more complex tax compliance. If a person is making larger amounts of money – usually in excess of a couple hundred thousand dollars – their deductions will be more complicated, or they might own a small business and have to file a Schedule C.
The IRS has a policy of only looking back six years in regards to the filing of tax returns. However, there is no time limit for the IRS to look back if there is tax fraud or evasion involving a taxpayer on a particular form in a particular tax year.
In order to remain compliant with their tax obligations, an individual or business in DC should file and pay their taxes on time. If timely full payment is not possible, they should contact the IRS soon after filing the tax returns to set up an installment agreement plan.
When most people fall out of compliance, they stop filing and paying, which is when the situation can spiral out of control. But as long as the taxpayer is making a good-faith effort to properly file their tax returns each year and resolve their tax debt, the enforced collections of the IRS, as well as their more aggressive tactics, will not be necessary because the taxpayer is proactively working with the agency to resolve the underlying tax debt.
It is not uncommon for a taxpayer to require help with paying what they owe in taxes. But failing to file will not resolve the issue. It is important to maintain tax compliance in Washington DC and get help from a legal professional if you must do so in a more discreet way. Call Pontius Tax Law to learn more about how we can get you into a better position with the IRS.