Turning Tax Troubles into Triumph: An 11-Year Resolution Journey

The Problem

The taxpayer had not filed tax returns in 11 years. The IRS filed a Substitute-For-Return (SFR) for two consecutive tax years, then used those returns as the basis for a balance of over $180,000, including penalties and interest. The taxpayer received a letter with the results of the examination, but the deadline to respond and dispute the amount owed had already passed by the time we were engaged.

The Challenges

• Eleven years of unfiled tax returns and the IRS's SFR process
• A $180,000+ debt built from penalties and interest on the SFRs
• Disputing IRS assessments without any prior tax returns on file
• Responding after the IRS notice's deadline had already expired
• Collecting records needed to file overdue returns and negotiate the debt

Our Approach

After securing power of attorney, we contacted the designated IRS hotline and successfully negotiated a 30-day extension to submit a rebuttal to the audit findings. Since the IRS only requires taxpayers to maintain compliance within a six-year window, we recommended limiting the filings to the most recent six years' worth of returns rather than all eleven. We then prepared accurate returns for the years under review and compiled the remaining necessary documentation.

The Outcome

• Accurate return preparation reduced the taxes owed by $55,000
• The taxpayer became eligible for an installment agreement, avoiding an early 401(k) withdrawal and its associated 10% penalty
• Given the taxpayer's health challenges and family caregiving responsibilities during some of the years in question, we pursued penalty relief on reasonable-cause grounds