Hello Mr. Mish – I have read several of your blogs and articles regarding non-filers. I am a financial education teacher for men and women in transitional housing. Due to the nature of their background, most of the participants in my classes have either never filed or have not filed in a long time. I would say many of them probably fall below the taxable income level but some probably should have filed. Now that these folks are trying to get back on the straight and narrow, what will happen when they begin to file?
Here’s one of my examples…a woman waited tables and reported some of her tips. She said she definitely made less than $20,000 a year but she’s not sure how much (I’m contacting the SSA to obtain information about that and I believe we will do a records request from the IRS via the FOIA, as you suggested)…she’s not really worried about if she owes but it’s the fear of not knowing what will happen that keeps her frozen, you know what I mean?
Another of my students has NEVER in her life filed taxes. She’s 39! I have no idea what her income situation was but I will do the same records requests for her…this is very common for people who work very little, are very low-income, and/or are battling drug addictions.
I don’t expect perfect answers to any of my questions, but any suggestions would be extremely appreciated. I will also be referring them to pro bono tax attorneys in our area once we’ve gathered some information for them to go on…
Thanks for any help, comments, suggestions…
Thanks for the question, this type of situation is really super common so I’m glad you asked. Generally speaking, wage earners must earn a minimum amount before they are required to file a tax return. The amount of earnings changes every year, so you’re going to want to check that out for each individual tax year. The amount is $8950 of earned income (from wages) for tax year 2008 and typically goes up a little bit each year.
Non-filers (people who haven’t filed tax returns in many years) can have quite an undertaking on their hands. The story usually goes something like this, “I skipped a year and nothing happened, then one year became two and so on. Now it’s been 10 years and I haven’t filed a tax return. What do I do?” The simple answer is that the crime of failure to file a tax return carries a statute of limitations for the crime of six years. What’s that mean? It means (generally speaking) that if the government doesn’t prosecute you within that time frame, they can’t anymore. For this reason, we typically advise our clients to prepare and file the last 6 to 7 years of returns, the earlier ones, they simply got away with it.
Next, how to obtain the necessary information to file such old returns? Well…you touched upon one method, if the taxpayer was a wager earner, oftentimes, the Social Security Administration will have records that are relatively easily obtainable. You can access Social Security’s website at: ssa.gov There should be information there on how to obtain these records.
Second you can always call the IRS at (800) 829-1040 and ask them to send you a “Record of Account” I don’t usually like this method because it has a tendency to speed things up. The IRS will likely start to ask a lot of questions, about where the taxpayer works, where do they live, where do they bank etc. Not really my idea of flying under the radar if you know what I mean. Lastly, you can file a Freedom of Information Act request which is actually beyond the scope of this video. I really don’t have time to explain it here.
But that’s it really. If you’re dealing primarily with wager earner type folks. People who had taxes withheld from their paychecks, they probably don’t have a problem at all. In all likelihood, the IRS would have owed them money for each year. There is one catch in late filing for someone who should have gotten a tax refund. If the refund return is filed more than three years late, the taxpayer forfeits the refund and credit for the refund. In other words, if some years are balances due and some are refunds, if the refunds are more than three years late, they will not offset those liabilities. I know it’s not fair, but that’s something you can raise with your Congressman or Senator.
So that’s it. Hopefully these suggestions help your clients and the thousands of folks who end up seeing this video. I’m Darrin Mish and for everyone here at the firm, I’d like to remind you “IRS Problems Don’t Solve Themselves!”