What is my first step??? 6 years back taxes not filed

[thisguyneedshlp]

Ok, post #1 here we go. So for the past 7 years I have been working as an independant contractor and recieving a 1099. The last year I filed my taxes was in '01 in which I defaulted on an installment agreement to the IRS. So of course I need to file for years '02 through '07 (made about $30,000 yr) so I need to pay taxes on $180,000 (before deductions) not including penalties and interest!!!! Ive just been reading, reading, reading. It seems that bankruptcy is a better choice than an offer-in-compromise at this point. I could handle the tax debt but the interest and penalties just about double it after being ignored for 6 years. Any info that you can help me with would be very appreciated!
Just for starters:
Is any of this tax debt dischargeable?
Am I a better candidate for 7 or 13?
Does the defaulted installmet agreement as bad ad I think?
Know of a good lawyer in Denver?
Thanks! - thisguyneedshlp

[HHM]

With that kind of tax issue, you need to find a BK attorney with a tax specialization.

Since the taxes were never "filed", I do not think they can be discharged in BK. The basic rule for federal income tax is taxes that are 3 years old, assessed AND Filed in a timely manner (at the time) can be discharged.

[thisguyneedshlp]

Thanks for your reply. I thought that I read somewhere that the pentalties and interest could be discharged (in Chapter 13) and then I could set up a payment plan to pay just the principle. I'm just looking to know all the right questions to ask so I can find someone suitable to represent me and I can have an idea of what my options are beforehand.

[CindyLou]

IMO an offer in compromise would be a good option for you. It is a large amt of taxes and your income is not too high. As far as the defaulted agreement, I don't think that's anymore of a big deal than having not filed. Your in equal doo doo for both.

You need to see one of those "settle for pennies on the dollar" attorneys from the yellow pages that also does BK's. But if you can't find one that does both I'd go with the tax guy first.

The thing with the IRS is that if YOU initiate a resolution, its always a much better situation.

btw....The 2001 taxes would be dischargable.

This can be fixed. It may not be a piece of cake, but ignoring it for even one more day is not a good idea.

[CindyLou]

oh and yes sometimes the interest and penalties can be discharged in bk....not sure of what the guidlines are on that.

[CindyLou]

http://www.bkforum.com/showthread.php?t=20995

see this thread

[thisguyneedshlp]

Yeah, I'm thinking an offer-in-compromise might be the best bet for me if I can't discharge any penalties and interest on years that I haven't filed. Its seems for each year that I haven't filed the tax penalties and interest will be almost double what it would have been. (lets say in '02 I owed $4,000 in taxes is it safe to assume the penalties and interest on that is an additional $3000?) I get this from:
25% failure to file penalty
25% failure to pay penalty
compounded interest over 6 years
If this is the case how could you ever catch up. I mean if you couldnt pay it then how could you pay double now? If only 1 year of my back taxes would qualify to be discharged I guess OIC is for me then. Thanks!

[CindyLou]

did you see the other link I sent you? This person filed BK on the interest and penalties. Maybe you can PM them and get more info about their situation.

[biotechsolution]

Yeah, I'm thinking an offer-in-compromise might be the best bet for me if I can't discharge any penalties and interest on years that I haven't filed. Its seems for each year that I haven't filed the tax penalties and interest will be almost double what it would have been. (lets say in '02 I owed $4,000 in taxes is it safe to assume the penalties and interest on that is an additional $3000?) I get this from:
25% failure to file penalty
25% failure to pay penalty
compounded interest over 6 years
If this is the case how could you ever catch up. I mean if you couldnt pay it then how could you pay double now? If only 1 year of my back taxes would qualify to be discharged I guess OIC is for me then. Thanks!

If you just filed the taxes you're going to have to wait 2 years past your filing date to have any of them dischargeable.
And then this would be the ones that are 3 years past the filing date. Which would be say you filed them on april 15th, 2008. you could then wait 2 years to file and discharge all taxes up to tax year 2004.

Your best bet would be an offer in compromise. Offers in compromise take a long time to proceed. File all the returns ASAP. Then when you get your first collection letters then file an Offer in Compromise. This will at least stop the levy procedures. It could take 3-6 months until you start getting collection letters. It will take at least 6 months for your first offer in compromise hearing. If you appeal it will add another 6 months or more. You add all these up your getting close you your 2 years, could actually be more. By them if you might be able to discharge even 2005 or 2006 taxes. All you will have to do is wait 270 days after you recind your offer in compromise to file bk.

[FreshLikeADaisy]

Sounds like your very first step is to file the missing returns. It might not be a bad idea to hire someone for the occasion, just to be sure. But you can't even begin to make an offer in compromise until you know what you actually owe, and start from there. After you file those returns, find a good bk/tax atty to guide you through the rest; I really think if you get that seasoned professional help you'll have a better outcome in your dealings with the IRS. Good luck!!!

[phoenyx]

You're going to be wanting to clearly explain and document any reasons that kept you not filing or not paying. If there's anything reasonable to back up your actions, the process will be a lot easier. If it's just procrastination, it'll be a harder process, but anything is fixable.

Your first step is getting the returns completed. You can't talk to a specialist in much detail until you can show them what you're going to owe. I'd definately recommend seeing a specialist before actually filing the returns. That being said, it sounds like it would be better if your returns were in sooner rather than later, so I's guggest seeing a specialist ASAP.

My impression is that you'll want to find someone locally, not a website. Although I am sure decent help is available over the internet, you'll run into a lot of non-presonal and non-professional "mills" that take money and file non-specific things for you that don't get results.

You're going to be interested in talking with someone who has experience in Offers in Compromise, and depending on your reasons for not filing and not paying, perhaps penalty/interest abatement, and certainly Chapter 13 bankruptcy.

I just got a great book lately called "The IRS Problem Solver" by Daniel J. Pilla, which could be a good read for you. This book will let you know what possibilities exist, and will alert you to some of the scammers you could run into during this process that could make the problem worse rather than better. The author isn't one of these quacks saying the IRS is illegitimate and isn't allowed to collect or anything... He's a well respected tax litigation consultant. I would hope a specialist that you would see would know everything in this book, but it could be worth reading to make sure you don't get someone who's taking your money and leaving you without results.

[phoenyx]

Yeah, I'm thinking an offer-in-compromise might be the best bet for me if I can't discharge any penalties and interest on years that I haven't filed. Its seems for each year that I haven't filed the tax penalties and interest will be almost double what it would have been. (lets say in '02 I owed $4,000 in taxes is it safe to assume the penalties and interest on that is an additional $3000?) I get this from:
25% failure to file penalty
25% failure to pay penalty
compounded interest over 6 years
If this is the case how could you ever catch up. I mean if you couldnt pay it then how could you pay double now? If only 1 year of my back taxes would qualify to be discharged I guess OIC is for me then. Thanks!

You're exactly right. Many people with very late tax debt can see how to pay the original amount, but with penalties and interest, the amount can easily double or even triple given enough time... Ballooning into a seemingly insurmountable amount. Know that you're not alone, and there are specialists around that have dealt with other cases that are probably almost exactly like yours.

[thisguyneedshlp]

Thanks for all the replys, (and those that have sent me PM's). Does anyone know how chapter 13 would help me in regard to these back taxes without waiting the 2 years until they are dischargeable? Could I file chapter 13 immediately and set up a plan for just the last 3 years of owed taxes? Im getting so much conflicting info. Thanks again!!!

[biotechsolution]

unfortunately with the new BK laws. Taxes are treated the same way in a chapter 13 has they are in a chapter 7. Before the new law if you filed for a chapter 13 you didn't even have to have the taxes filed. It was considered a 'superdischarge', that's gone now.

The only advantage of filing a 13 now for taxes is that they can be paid in the plan. With regards to penalties it depends on the district you are in whether they will dischcarge them. Some districts will discharge penalties if the penalties are over 3 years old even if the taxes are not because the penalty is considered a 'punitive' tax.

the downside is if all your tax cannot be paid back in the 5 year period you may not qualify for the 13 because priority tax and secured must be paid back at 100%. And if you don't wait the 2 year, 3 year and 240 day periods, all the tax will be considered 'priority'.

If you plan on filling a 13 then don't worry about tax liens, they can be stripped down in a 13 just like any other secured lien.

[krielly]

We filed 13 in Oct 05 (old law).
We had tax debt which we included in the plan.
The IRS filed a proof of claim and the breakdown was as follows:
Principle tax: Priority debt - paying back 100%
Penalties and interest - unsecured - paying back at same percentage as other unsecureds.
The beauty of the BK filing is that it stopped further penalties from accruing.
It also was an excellent feeling knowing we had a plan for paying back the IRS and didn't have to worry anymore about what they might do to us.
Have you completed your returns, or do you have a rough idea how much you might possibly owe the IRS at this point???
Not sure what is meant by the "super discharge" mentioned by a previous poster........we filed old law, and still had to submit previous year returns at time of filing.

K