expenses. Although I know I am supposed to file, I was just lazy and did not do it. Now the IRS is looking into my affairs for other reasons. Can they charge evasion or other criminal if the net operating activity is a loss to me, and therefore no tax to them? Would they just penalize me, or would they take the time to pencil out the income to make a determination? Should I rush and file, or hire an attorney to call them first? Now I am frightened and do not know what to do.
You definitely need to hire a tax attorney, preferably one with both civil fraud and criminal experience. Better yet, I would retain a former government tax attorney who has prosecuted tax crimes.
Although you believe that the losses from your rental properties exceed your gross rental receipts, that does not mean that you were not required to file tax returns for those years. The requirement to file a tax return for a given year is triggered by your receipt of income greater than or equal to a specified amount (i.e., the "zero bracket amount," which is the sum of your personal exemption and standard deduction for the tax year at issue). The willful failure to file a tax return, 26 U.S.C. Section 7203, is a misdemeanor punishable by up to one year of prison and a fine of up to $25,000 per offense. This is the same crime for which Wesley Snipes was convicted and sentenced to 3 years of imprisonment (due to his willful failure to file tax returns for 3 separate years). Thus, your requirement to file a tax return is independent of any expenses that you may have incurred from your rental properties.
Whatever you do, you should not have any further communications with any IRS agent (or any Federal or State government employee) about your tax matters until the retain experienced tax counsel. In dealing with IRS employees, you should keep in mind that their agenda is to determine and collect additional taxes and to detect tax fraud. No matter how professional and helpful an individual IRS employee may appear to be, he/she is definitely not your "friend" but is someone to regard with extreme caution.
The answer to this question does not establish an attorney-client relationship. Moreover, this attorney is licensed to practiced law ONLY in the State of California. Answers to questions from users in other jurisdictions or states are meant to provide only general information. Users should contact a local attorney in their jurisdiction or state to address their specific tax issue.
Hier an attorney and file your returns whenever there are potential criminal consequences to you an investigation of your tax matters.
Phillip M. Smith Jr.
Los Angeles Tax & Business Attorney
Licensed in the United States Tax Court
Main: 323-292-4116 ❘ Cell: 562-505-1004
THESE COMMENTS ARE NOT LEGAL ADVICE. They are provided for informational purposes only. Actual legal advice can only be provided after consultation by an attorney licensed in your jurisdiction. The answer to question does not create an attorney-client relationship or otherwise require further consultation. Mr. Smith is licensed to practice law throughout the state of California with offices in Los Angeles County. He is authorized to handle IRS matters throughout the United States, and is also licensed to practice before the United States Tax Court. His phone number is 323-292-4116 or his email address is firstname.lastname@example.org.
Failure to file and failure to pay tax are two different issues. I would contact an attorney or a CPA with experience in negotiating with the IRS to assist you. It is an extra expense, but in my experience you will get a different reception (more professional) from the IRS (or the Franchise Tax Board for that matter.)
The above is general legal and business analysis. It is not "legal advice" but analysis, and different lawyers may analyse this matter differently, especially if there are additional facts not reflected in the question. I am not your attorney until retained by a written retainer agreement signed by both of us. I am only licensed in California. See also avvo.com terms and conditions item 9, incorporated as if it was reprinted here.
You should do both. The more promptly you comply with tax filing requirements the better and if your showing losses on all fronts, then that also may assist in bringing the matter to resolution. Whatever you do, do it quickly. With the IRS, nothing gets better with time.
Evan A. Nielsen is licensed to practice law in California and handles federal tax matters throughout the U.S. The information provided here is for educational purposes only and is not intended as legal advice for a particular matter. This response does not create any attorney-client relationship with the author. For specific advice about your particular situation, please consult an attorney.
Don not make any more public posts. You are potentially exposing yourself to Criminal Tax Fraud charges. Please get an appointment with a tax lawyer right away.
If you do not like this answer or disagree, please look at one of the other answers provided. It is not necessary for you to try prove this answer is "wrong" or something with which you do not agree. This is a free service for you based on limited facts. Nevertheless, many times you need to consult an attorney with the details to get actual advice specific to your concerns. Do not put too many details in your questions or comments because this makes the information public and could hurt you. Government Regulations contained in IRS Circular 230 regulate written communications about Federal tax matters, including e-mail, between us and our clients. This is another attempt by the government to limit your rights and to extend the control of government over individuals and businesses. Nevertheless, such communications are either opinions or other written communications. This is not an opinion. It is other written communication and was not written to be relied upon, by itself, to avoid any tax penalties. In order to receive assurances of protection from tax penalties from a written communication, you should get an opinion letter. If you would like to discuss an opinion letter relating to any matter, please contact me and I will explain what is involved and what it will cost.