Facing Tax Debt: 3+ Years of Unfiled Returns

The Scenario

Imagine a taxpayer who has not filed their federal tax returns for over three years. This individual may have been overwhelmed by various life circumstances, such as job loss, health issues, or simply feeling daunted by the complexity of tax laws. As time passes, the unpaid taxes accumulate, leading to a substantial tax debt that can cause anxiety and uncertainty. The IRS is aware of unfiled returns and may take various actions to collect the owed taxes, making it crucial for taxpayers in this situation to understand their options and the potential consequences of inaction.

The Risks You Face

Failing to file tax returns for an extended period opens the door to several enforcement risks from the IRS. One of the most significant risks is the imposition of a tax lien, which legally claims your property as security for your tax debt. A lien can affect your credit score and make it challenging to sell or refinance your home. Additionally, the IRS may issue a tax levy, allowing them to seize your assets, including bank accounts and wages, to satisfy the tax debt. Wage garnishment is another form of enforcement where the IRS can directly take a portion of your paycheck until your tax obligations are met. These actions can lead to financial distress and further complicate your situation.

IRS Relief Programs Available

Fortunately, the IRS offers several relief options that can assist taxpayers in resolving their tax debt. One of these is the Offer in Compromise (OIC), which allows you to settle your tax debt for less than the full amount owed if you can demonstrate that paying the full balance would create a financial hardship. Another option is the installment agreement, where you can make monthly payments toward your tax debt over a specified period. For those who cannot currently pay anything due to financial difficulties, the IRS may grant Currently Not Collectible (CNC) status, temporarily delaying collection efforts. Additionally, there may be opportunities for penalty abatement, which can reduce or eliminate penalties associated with late filings or payments, provided you meet certain criteria.

Steps to Take Now

If you find yourself in the position of having unfiled tax returns, it’s essential to take action. Understanding your situation and your options is crucial for resolving your tax debt and avoiding severe enforcement measures. Consult with a tax professional to explore the various IRS relief programs available to you, and determine the best path forward based on your financial circumstances.

Disclaimer: The information provided in this article is for general informational purposes only and should not be considered legal advice. It is recommended to consult with a tax professional for personalized guidance.

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