Debunking five IRS and tax filing myths
Dealing with the Internal Revenue Service can be complex, confusing and downright scary. Misinformation runs rampant, making it hard to discern between IRS fact and fiction.
Thankfully, a tax expert can reveal how you can file complicated taxes successfully and how you should respond to further IRS interactions. Oklahoma City tax attorney Travis Watkins, winner of the Oklahomans’ Readers’ Choice Award for Best Taxation Attorney, broke down some of the most pervasive tax myths for our readers.
Myth: Filing taxes is voluntary, not required
“The U.S. taxation system is ‘voluntary’, but that doesn’t mean that filing is optional,” Watkins said.
Voluntary in a taxsense means that you are responsible for filing the correct amount of your own taxes each year. You are volunteering your tax information to the IRS. Once the IRS receives your information, they may review how much you owe. Refusing to volunteer your information can lead to a world of complicated paperwork, legal repercussions, and extra costs, he said.
Myth: You can go to jail for unpaid taxes
Unpaid taxes can cause you a lot of headaches, but can it land you in jail? This myth is only true in certain situations, Watkins said. If you forgot to file one tax return, the IRS is not likely to turn you over for criminal prosecution.
“The IRS does not put people into jail for paying their taxes late or negligently forgetting to file their returns. The only time people may face a jail sentence is if they commit fraud (tax evasion, for instance) or willfully failing to file,” Watkins said.
Although being a little late on filing a tax return is not a criminal issue, there are potential penalties, interest and late fees for unfiled returns and late tax payments, he added.
“If you owe over $50,000, the IRS can request the State Department to take away your passport until matters are settled,” Watkins explained. “Save yourself from worry and have a tax professional file taxes before due dates pass. Don’t be part of the masses who financially imprison themselves with the IRS.”
Myth: The IRS can only go back three years
Typically during an audit, the IRS reviews returns three years old or less, but if they suspect you of understating your income by 20 percent or more, they will go back further.
“For instance, if your business earned $100,000 and you only reported $80,000, you didn’t report 20 percent of your income, and as a result, the IRS may look back at up to last six years of your past income tax returns. This is why we counsel taxpayers to keep tax documents for at least that long.” Watkins added.
In cases where fraud is suspected, the IRS will go even further back in years to review returns. This time limit is placed only on tax returns that have been filed. If an audit concerns unfiled returns, the IRS will go back as far as necessary to figure out what is owed.
Myth: Oklahoma Homestead Exemption law protects from IRS
One of the most common myths is that the IRS cannot take your home because of the Oklahoma Homestead Exemption law. Oklahoma’s Homestead Exemption Act protects your home and up to one acre of real property (160 acres in rural Oklahoma) from creditors. However, Federal tax laws preempt (control) state law and allow the IRS to take residences. “They sometimes seize homes, if there is enough equity to do so; however, that process is long and taxpayers have time to make arrangements to pay or settle the debt before this extreme measure occurs,” said Watkins. “So, hire a local tax lawyer early in that process to assist.”
Myth: If you owe the IRS money, the only option is a payment plan
You have options when dealing with tax debt. Payment plans can be set in place, but there are also penalty forgiveness programs available that can help reduce or eliminate penalties and interest. In cases where spouses have been duped into tax debt by their partners, a special spousal relief program is available, Watkins said.
You could also qualify for an Offer In Compromise. Offers In Compromise are agreements that let you pay off tax debt for less than you owe by making payments on a reduced balance or settling for a reduced lump sum. You may also be able to qualify for a currently not collectable status. This status allows the IRS to put your account on hold and allows you to hold off making payments for a set time, generally 2 years.
Many people do not know which programs are available to them when handling the IRS on their own and can easily land themselves in more trouble. Always review your specific case with a tax attorney to know your full list of options. There are a number of options that Watkins Tax might be able to do to stop the IRS from taking money from your bank or paycheck.
“If you’re dealing with the IRS, a tax attorney can help you avoid the myths, navigate the process and negotiate the best deal possible. These professionals understand how to work with the IRS in ways that truly benefit their clients,” Watkins said.
A tax attorney has years of IRS experience and can help manage immediate threats to your livelihood like seizures by helping you understand your rights with the IRS, said John Rawl of Tulsa, one of Watkins’ clients.
“We had major tax issues and they made it so easy and really affordable,” Rawl said.
For more information, contact Travis Watkins at 1-800-721-7054 or visit TravisWatkins.com.
This article is sponsored by Travis W. Watkins Tax Resolution and Accounting Firm.
If you owe over $50,000, the IRS can request the State Department to take away your passport until matters are settled. Save yourself from worry and have a tax professional file taxes before due dates pass. Don’t be part of the masses who financially imprison themselves with the IRS.” Oklahoma City tax attorney Travis Watkins
Travis Watkins, Oklahoma City tax attorney