Past unpaid taxes

[Deesssyy]

Jurisdiction

Missouri

I received a $190,000 of a $300,000 settlement from a car accident in 2003. I was told this was not taxable. I've had multiple surgeries and it still effects me today. I took 50k and invested in stock through Scottrade and 3k into a Roth IRA. I was going through a really bad time and let a lot of stuff go. I drained the accounts in 2005 I think. I never filed taxes on any of it. The IRS has never contacted me regarding this. The state of Missouri did file a tax lien on me 8-10 years ago for 11k. I finally filed taxes for 2017 for the first time since all of that. The state took my return, which I expected.

I am now trying to get things up to date. I met with a CPA. She is filing my returns from 2013-present. Before that, I only worked part time jobs making maybe 10-15k a year. The most I have ever made is $24k and that was 2018. I only had the stock account active 2003-2005. I made decent returns, 10-20%. I have tried to find my 1099s or any paperwork from those years but have not been successful. I contacted the firm and they can not go back that far. My CPA can only get transcripts from the IRS going back 10 years.

My question is, should I just file for the last 5yrs and leave it at that and hope and pray the IRS never comes after me? At this point, I don't even know how to go about getting the info I would need to file for those years. My CPA thinks the IRS won't come after me since it's been that long, they've never contacted me and it's pretty small by their standards but she did say, legally, it can be considered tax fraud and I should consult a tax attorney.

 

[army judge]

My question is, should I just file for the last 5yrs and leave it at that and hope and pray the IRS never comes after me?

I suggest you pose ALL of your questions to your CPA and/or your tax attorney.

I also suggest you NOT solicit answers on such an impactful matter to you from strangers.

My CPA thinks the IRS won't come after me since it's been that long, they've never contacted me and it's pretty small by their standards but she did say, legally, it can be considered tax fraud and I should consult a tax attorney.

I suggest you retain a tax attorney to represent you, protect you, and advise you accordingly.

Don't take any advice from strangers!

 

[Tax Counsel]

I received a $190,000 of a $300,000 settlement from a car accident in 2003. I was told this was not taxable.

Correct. That settlement was not taxable income.

I took 50k and invested in stock through Scottrade and 3k into a Roth IRA. I was going through a really bad time and let a lot of stuff go. I drained the accounts in 2005 I think. I never filed taxes on any of it. The IRS has never contacted me regarding this.

Here's the thing. Brokers like Scottrade must report all the stock sales they do for you on a Form 1099. So the IRS knew of the sales. It would take that information and combine it with the other 1999 and W-2 forms it had for you to compute what it thinks you owe. If the computer thought you had taxed owed from that, the computer would spit out a notice to you about that. The fact that the IRS did not do that suggests its computations didn't come up with any amount due for you.

I am now trying to get things up to date. I met with a CPA. She is filing my returns from 2013-present.

A great way to start to get yourself back on track. The IRS in most nonfiler cases only goes back about six years for returns. It will go back further in cases where it thinks that significant additional tax will actually be collected (not just assessed). As you describe your circumstances it seems pretty unlikely the IRS would be interested in going back any further. Make sure you file 2018 on time. Make sure you have enough withholding and estimated tax payments going forward. Tax sin no more going forward.

IMy CPA thinks the IRS won't come after me since it's been that long, they've never contacted me and it's pretty small by their standards but she did say, legally, it can be considered tax fraud and I should consult a tax attorney.

Technically the IRS can come after you at any time to assess tax for years you never filed returns. So yes, the IRS could come to you today or 10 years from today and say it wants to assess $X for that 2003 return you never filed (or any of the others). If that happens, you can argue with the IRS about the details of the assessment then and make sure you get credit for things that you can prove. It's not likely at this point since if it had the information to do that and it's computations show you'd owe tax, it would have already done that some time ago.

As for tax evasion and tax fraud, CPAs tend not to be really familiar with the details of the law on those crimes. They are, after all, not lawyers. However, if the CPA really thought that criminal tax issues might be lurking there she should have referred you to an attorney and stopped doing anything on your returns because what you tell her is not privileged in tax criminal matters like it would be if you told it to a tax attorney. That said, I don't see any need to scramble to a tax attorney for this just yet unless you have already been contacted by a criminal agent of the IRS. In that case, run to a tax attorney ASAP.

But if you haven't been contacted yet and have no other indications that a criminal investigation has started, you're likely fine. The statute of limitation (SOL) for federal tax felony offenses is six years. It is too late now for the IRS to pursue criminal charges for those 2003-2005 returns. It could still come after you for the tax, but couldn't seek to put you in prison for those. In addition, to win a tax evasion/tax fraud case, the Supreme Court has said the government must prove that you knowingly evaded tax. Here, that means proving that the reason you didn't file was deliberately done to hide your income from the government. That's extremely hard to prove in a simple nonfiler case. The IRS does not bring a lot of criminal cases. They take a lot of time and effort to put together and prosecute. So the IRS and DOJ tend to pick cases that will make maximum impact when they hit the news. Prosecutions are most often brought against celebrities, politicians, sports figures, lawyers, judges, corporate CEOs, sports figures, those who are quite wealthy, etc, for that reason. They do bring a few cases against ordinary people, too, but your risk for that is quite low, statistically. File accurate returns for the last 5-6 years (which are the still open for criminal prosecution now) before they come after you and you close the door on even that low chance.

If an IRS Special Agent (those are the criminal agents) contacts you, get to a tax lawyer. Otherwise, unless you have a complex tax issue you haven't mentioned, I see no reason to see a tax lawyer right now. If it would give you peace of mind to see one, then by all means do. But don't lose sleep over thinking IRS agents are to bust down your door looking to arrest you for tax crimes if there have not yet been any indications of criminal investigation.