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In this episode of Practical Tax, tax attorneys Steve Moskowitz and Liz Prehn discuss the issues people can face if they have unfiled taxes. In these cases, many people feel like it’s too late to get their taxes in order, but Steve and Liz are here to tell you that it’s never too late. Listen to the podcast to learn more!
Episode Transcript
Speaker 1: 00:00 My husband and I haven’t paid our taxes in five years. I’m embarrassed to even tell you that. I keep telling him that it’s only going to get worse, but he says we could lose everything.
Speaker 2: 00:09 You’re listening to Practical Tax, with tax attorney Steve Moskowitz.
Steve Moskowitz: 00:12 Hi, I’m tax attorney Steve Moskowitz, with longtime Moskowitz associate, tax attorney Liz Prehn. And you’ve probably, over the years, heard me say, “Haven’t filed a tax return for years? Think you can’t have a life? Think again. Don’t let that deter you from filing right now.” And there’s just so many stories here, where people either live a life of quiet desperation, or they let it ruin their lives, their marriages, their business, and this is something that takes over their life. That’s all they think about. They can’t enjoy anything. What’s the government going to do to them? What horrors await them? In so many cases, there’s so much good help for people that they just don’t know about.
Liz Prehn: 00:50 Sadly, and happily, have a lot of examples and a lot of great resolutions. Yeah, I mean I have a really lovely client. She’s a doctor. She’s now in her 70s. She’s practicing, loves her job. There was a mail theft issue at one point. There was maybe some identity theft issues that were going on, and she just stopped dealing with the paperwork. Notice after notice after notice. And, what happened was the government just went ahead and started making up returns for her, which they do. It’s called Substitute for Return, when the taxpayer doesn’t do it. It’s basically so that they can make an assessment and collect tax. That’s just what congress signed off on. It’s just a process that we have. I don’t think it’s particularly fair, but what are you going to do when you have an entire country that you’re trying to collect levy taxes on?
Liz Prehn: 01:40 So what she did is she just stopped opening her mail. Great doctor, ER doctor. She’s dealing with the traumas of the traumas of the traumas in Richmond, California every day. And, she just was getting levied left and right. So she was basically working for free. And she has a house. She has deductions. She’s got kids. She has a world. And, what we did was we went back, we got all her records, we got the tax returns done. She ended up getting big refunds every year because she is an ER doctor, and I don’t want to get too political here, but the doctors’ salaries have been a little bit diminished, especially in some of those type of professions. And, she’s now solvent and doesn’t have to worry about opening the mail.
Liz Prehn: 02:25 A lot of people are just unorganized with their bookkeeping. They don’t know what to do one year, and they just they come in, and suddenly it’s been five years, and they haven’t filed. With the IRS, right now, it usually takes a few years for them to catch up. I think that’s getting faster. I think over the course of our practice, Steve, that we’ve seen the computer times and the efficiency of the IRS ramp up. Of course, we’re here located in California. We represent people worldwide, but in California, the state efficiency is very fast. So they’re on taxpayers within a year or two. But oftentimes, they’re just completely wrong. They’re making up the income that they think that the taxpayer earned, based on a professional license.
Liz Prehn: 03:03 So, if you were a doctor, you didn’t file, maybe you took time off to start a family, or do some research and write a book, and you didn’t make any income that year, they’ll just go based on what the average doctor in California makes, file the return for you, and suddenly there’s a huge tax bill. Which snowballs into bank account levies, wage garnishments, things like that. And in reality, it just needs to be… It’s kind of a simple accounting, just what happened that year. Let’s put it together. Let’s face it together. If you owe, we’re going to be right here with you. We’ll walk through the process with you. I’ll stand by your side the whole time. It doesn’t have to be a scary unknown. And I think it’s just the fear of the unknown.
Liz Prehn: 03:42 And Steve, I mean, let’s talk about what happens when one government agency finds out something, especially when it comes to finances or taxes.
Steve Moskowitz: 03:50 The IRS in the States have what’s known as an information sharing agreement. So when one of them finds out anything, they report it to the other one. And again, it is so vitally important to clean this up. There’s two major punishments for not filing a return. One is you can go to prison for one year for every year you don’t file, up to six years. And the other one that happens all the time is what you talked about, the SFR, Substitute for Return, where the government makes up a tax return, and that can be a lot more than you really owe.
Steve Moskowitz: 04:20 And the most common reason that people don’t file returns is they fear they owe. And when they get caught, they come in waving these bills. And oftentimes, the person, when they file the return, doesn’t owe anywhere near what that bill says. Another big reason is somebody left them. The spouse, the business partner, the bookkeeper. They don’t know where the records are. They go into panic. They don’t file. These are things that commonly happen to people. It’s real life. So, we’re not just there quoting statutes at you. We understand this is your life, this is real life. We’ve done so many of these cases. Our number one goal is just to give you back a normal life.
Steve Moskowitz: 05:01 If this is you, just call us. You have an attorney-client privilege consultation. That means, by law, whatever you tell us remains a secret, unlike anyone else, like a CPA. And that’s one of the reasons I became a tax attorney instead of practicing as a CPA, which I was first. And we have a lot of experience with this. You have nothing to worry about. We’ll explain everything to you. We’ll give you all the options. And in almost all cases, we can do everything for you. You won’t have to talk to the government, deal with them, have anything to do with them. We will present your case. We’re your advocates. We’re your friends. We just do everything. And, we’ve had so much good experience in this area. Talk to us, and let’s find out your case. And oftentimes, people worry about a lot of things that they shouldn’t because we can go ahead and fix these problems for so many people.