For our purposes a non-filer is defined as a person who has failed to file an income tax return by the legal due date (including extensions) for one or more years. The overwhelming number of people who become non-filers due so simply because either they do not have the money to pay what they owe when it is time to file or they had tax withheld but never got around to completing and filing their return. This is often the result of extenuating circumstances such as divorce, substance abuse, loss of a job or a spouse, and even illness or injury. Many non-filers are people who are self-employed or "contract" labor, so that the I.R.S. is informed of their income via the form 1099 (which until recent years were not matched with actual returns received by the I.R.S). Others, such as professional gamblers, have income that is not reported to the I.R.S. at all and thus can live an "underground" existence if they so choose. Once a person makes the decision to not file for one year, the decision not to file in subsequent years is often made even if the extenuating circumstances have ceased to be a problem. The non-filer can become trapped into a lifestyle they would otherwise not have chosen, due to the fear of the consequences resulting from not filing or the lack of money to pay "all those back taxes" or both. But for many the perception of "all those back taxes" is often worse than reality.

Many non-filers actually have refunds waiting for them when they file. This situation can occur because the non-filer had earned income which was subject to withholding during the years they did not file. If they had no other income, the amount withheld could more than cover the actual taxes owed, leaving a refund due to the non-filer. Another factor which can result in a refund is the Earned Income Credit which applies to taxpayers whose earned income totals less than certain maximum amounts based upon the number of qualifying children in your family. The E.I.C. is a refundable credit which means that you do not have to have a tax liability to get the credit. It is more like having additional withholding credited to your account and thus the excess over your actual tax liability is refundable to you! Beginning with the tax year 1994, the E.I.C. was extended to individuals without qualifying children. Thus, if you are a non-filer, you might have a pleasant surprise waiting for you.

It is much better for the non-filer to initiate contact with the I.R.S. than to have the I.R.S. track them track down. If they so choose, the I.R.S. can reconstruct your tax return from any and all data they can find including estimating your income based upon your lifestyle and then filing your returns for you, with only their data. The choices for the non-filer are limited, one is to "get legal" and the other is to perpetuate the non-filing syndrome by living an underground existence, possibly in constant fear of being discovered, having to survive in a cash only lifestyle, being unable to take a job for wages or to take advantage of the "system" and its "safety nets" should the bank roll disappear or some other tragedy inhibits the non-filer's ability to support themselves and their family.

Now let us get down to the nitty-gritty and discuss exactly what steps need to be taken to "come in from the cold" . First the non-filer must somehow reconstruct their financial life during the period they did not file. Any records such as bank statements, deposit slips, check registers, diaries, receipts for purchases and services which substantiate legitimate deductions that can be found should be gathered together and organized by category. Next the tax returns need to be prepared for all the delinquent years. If your are going to prepare the returns yourself, be aware that the returns are filed in accordance with laws in effect for the year being filed, so you will need the appropriate forms for the appropriate years and the corresponding I.R.S. instructions to insure that you report your income properly and more importantly, you take all deductions and credits to which you are entitled. If you are unsure of how to fill out the forms or how to interpret the instructions you can seek profession help from a tax attorney, a C.P.A., an Enrolled Agent or any licensed and bonded tax preparer. If you want to avoid the cost of competent assistance, you can take advantage of one of two assistance programs provided through the I.R.S. itself. Your local office provides tax preparation assistance on certain days each week for free performed by actual I.R.S. employees. Additionally the I.R.S. promotes a volunteer program in which lawyers and/or professional tax preparers from your local community make themselves available for free consultations in your area. Contact the I.R.S. (1-800-829-1040) for the specific time and place information regarding these programs at your district I.R.S. office. Once you are ready to file, (you have prepared your returns or are ready for assistance in their preparation) you should contact a non-filer specialist by calling the I.R.S., default to an operator and request to speak to a specialist in the non-filer's section. Discuss your situation with the specialist, including your status as far as preparing your delinquent returns, whether you need assistance or not, and have a good idea of when you will be actually be ready to file. Be ready to discuss the extenuating circumstances that contributed to your becoming a non-filer regardless of how embarrassing. You will also need to be ready to discuss your current financial situation and your ability to pay. These items may be discussed on the phone or the specialist may want to have you make an appointment for you to explain your case in person. Alternatively, you may initiate contact by merely mailing your returns to the I.R.S. location specified in the instructions for the form 1040 to the attention of the Non-filers Section along with a letter of explanation as to why you have not been filing (remember to keep a copy of your returns and your letter).

Once you have submitted your returns, the next step is triggered by the receipt of a notice of tax due from the I.R.S. Do not ignore this letter, respond right away by submitting payment in full within 30 days or by submitting an Installment Agreement Request (form 9465) or by negotiating a payment plan via telephone with a non-filer specialist at the I.R.S. (see above). An acceptable payment plan is one that covers a reasonable time (normally not more than three years) and that allows you to maintain a reasonable lifestyle while making your payments. It is best to submit your first payment with your request to show your good faith as the I.R.S. is not required to accept an "unreasonable" plan. There is an appeal process in the event they reject your payment plan. In the event your plan is accepted, it is accepted with strings attached. That is you are agreeing not only to making your payments on time but you must file all returns and make all payments on time for the next five years. Failure to do so may cause the I.R.S. to void the agreement and demand payment in full including any penalties even if the penalties were originally waived.

If you are in dire straights and it does not seem reasonable that you will be able to pay the entire amount over the rest of working lifetime, you may be required under extreme circumstances to liquidate your assets to generate funds with which to make a payment on your liability. If you still have a balance due after such liquidation or possess no assets of any value, you may submit an Offer in Compromise (form 656) on which you certify you "can't pay" the full amount due (which must be supported by an accompanying financial statement form 443-A for individuals and/or form 443-B for a business) and offer to pay a lessor amount which you can submit with the forms or you promise to pay by a certain date in full or in installments. You should pay the amount offered in the shortest possible time, which cannot extend beyond two years. If your offer is accepted, as with the installment agreement, you are automatically obligated to stay current for the next five years and if your offer is not accepted you have the right of appeal.

In conclusion, we would urge anyone in this situation to seek professional representation for the obvious reasons Be advised that should you represent yourself, you might be faced with answering difficult questions that a professional representative should be able to stonewall or at least buy you time to prepare your answer. But if you feel confident completing your own tax returns, all the forms and instructions required are available from the I.R.S. and can be requested by a phone call to the number above.