Why You Shouldn’t be Scared of the Tax Man

You hear stories all the time: from neighbors, friends of friends, and even celebrities getting caught up with the taxman for underreporting, not reporting or inaccurate reporting on their tax returns.

When it happens, people going to jail over bad tax reporting becomes major news, and it instills a little fear over an IRS agent showing up on our own doorstep. And that’s exactly how the agency wants it. After all, fear increases compliance.

I remember a client coming to my office clutching a thick white envelope from the IRS--too scared to open it. “What have I done? Am I being audited? Open it for me, I can’t stand it.” I open it only to discover it’s part of a mass mailing of payment vouchers for current year estimated tax payments - a pile of forms with no personal content.

I’ve also experienced clients that haven’t filed tax returns for years and are tired from constantly looking over their shoulder and are ready to bite the tax bullet. Invariably they ask, “Am I going to jail?”

I’ve dealt with clients who hadn’t filed in more than 20 years, clients who have filed but haven’t paid what they owe in decades, and I have clients with tax returns that read like a fiction novel.

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I have yet to see one client land in jail. An IRS auditor once told me that the agency doesn’t want to put anyone in jail since it’s more beneficial if taxpayers are out there working and bringing in revenue.

I’ve also had an auditor tell me that the agency was going to bring in the Criminal Investigation Division but would skip it if I compile the books and file an accurate return.  I did, and she kept her word.

Don’t be scared. Whatever your tax problem, there is a safe resolution. You only need to cooperate and meet the deadlines imposed by the IRS once you finally make the call.

Nonfilers

Keep in mind that if you are filing for tax years that are closed – the three year refund window has lapsed - you will not receive a refund. For example, if you are now filing your 2008 income tax return due April 15, 2009, and you had not gotten an extension to October 15, 2009, you will lose any refund reflected on the tax return. However, if you owe Uncle Sam money, you will be expected to pay.

Tax Liability.

Audits.

And if you are still left out in the cold, the Taxpayer Advocate is there to help you resolve your tax problems.  The Taxpayer Advocate is an independent organization within the IRS that has vowed to be your voice. You can contact a Taxpayer Advocate at 1-877-777-4778.

Bonnie Lee is an Enrolled Agent admitted to practice and representing taxpayers in all fifty states at all levels within the Internal Revenue Service. She is the owner of Taxpertise in Sonoma, CA and the author of Entrepreneur Press book, “Taxpertise, The Complete Book of Dirty Little Secrets and Hidden Deductions for Small Business that the IRS Doesn't Want You to Know.” Follow Bonnie Lee on Twitter at BLTaxpertise and at Facebook.