I have a few years' returns that have not been filed. One of those has a small refund coming and the others have amounts owing. The net total federal tax owed is about $8k. I assume that approximate penalties and interest will be another $6k. Then there will also be several thousand in state taxes. So, I assume the grand total to be around $20k. Without refinancing my home, I can sell some things to scrape together maybe half of the overall total. Questions:
1. Am I better off paying more immediately to state or IRS?
2. Assuming state will allow 24-month plan, will IRS allow at least 3 or 4 years?
3. Will they just automatically audit me because of this? Once I file, pay some, and work out payment plans, am I any more or less likely to be audited on these years, prior years or future years?
4. Should I handle all of this on my own or use professional help? (As you can see, affordability is, unfortunately, a big issue.) Does using an attorney or an enrolled agent in any way disadvantage me in my relationship with IRS (such as increasing chance of audits, etc.)?
You should file all tax returns immediately. You only have 3 years to collect a refund, so you need to be sure and file that return right away.
To answer your questions:
1) This depends on the state and their interest rates charged and normal collection procedures.
2) The IRS will typically allow a 5-6 year payment plan, which may be extended if you can show a financial hardship.
3) Filing late tax returns will not automatically trigger an audit. If you have not filed for many years I would suggest going over your issues with a qualified tax expert. Using a CPA, attorney, or enrolled agent will not disadvantage you with the IRS. They can only help you.
Depending on your reason for not filing, you may be able to receive some penalty abatement.
Has the IRS already sent you any letter or notices of audit? It does not sound like it, which can help your situation (trying to get things right before they audit you).
1 - In my view, you should deal with the IRS first. Utah income taxes are based on your federal taxes, and I think you should start with federal.
2 - IRS payment plans vary, but I would expect for the amount you say you owe, that you could get 3-5 years to pay.
3 - You *could* be audited and I am sure your late filed returns will be examined, but how hard they are looked at depends on what is there. I would not necessarily conclude that later years will be audited. It depends on the perceived risk, items on your return, compliance with your payment plan, and so on. But in the future, if you keep records, file all returns when due, report all income, only claim deductions or credits you are entitled to, then you should weather whatever comes along without serious problems.
4 - I do not recommend handling this matter on your own if you can avoid doing so. The reason is that you are more likely to miss things, fail to raise issues, make inadvertent admissions, and make other small missteps that can lead to you paying more than you otherwise might have done. So, you should get help if you can.
In addition to legal counsel, unless you are filing the simplest of tax returns, you should consider using a good local accountant to help with the return filing.
You may be able to qualify for low cost assistance from the U of U taxpayer clinic --
This answer or response should not be considered legal advice, and does not create an attorney-client relationship. If you have further questions, I would be glad to discuss your situation further. I can be reached at US - (801) 746-6300, or online at -- http://www.lewishansen.com/attorneys/robinson.html
Estate Planning Attorney
The other attorneys offer good advice and having a local professional who knows the state taxes as well will be helpful - for example, I find it beneficial and easier to deal with state taxes in NJ first which is the opposite of what the UT attorney said. The reason being that for NJ residents there is very little chance to negotiate or get extended payment plans (at least compared to IRS) and once you have your NJ tax payment set you can use it as an expense in your regular monthly expenses when calcualting what you can pay to the IRS. Having this number is good in all states but I have seen people with pretty high monthly taxes to NJ (or PA) end up with payment plans over 72 months with the IRS where the state tax was used as a necessary expense on the 433 form.
This is not legal advice nor intended to create an attorney-client relationship. The information provided here is informational in nature only. This attorney may not be licensed in the jurisdiction which you have a question about so the answer could be only general in nature. Visit Steve Zelinger's website: http://www.stevenzelinger.com/