Tax Tips
How to handle potential identity theft, back taxes and debt

By Howard Abrams, PBS Tax & Bookkeeping

Q. I received a letter from the IRS indicating potential identity theft. What should I do?

A. You should respond immediately to the number on the notice. It should be the same as the IRS Identity Protection Specialized Unit at 800-908-4490. If any others you know suspect they are a victim of identity theft, they also should call the above number.

Also, complete the form 14039, Identity Theft Affidavit, and attach it to a copy of your driver’s license, passport or Social Security card. Once the IRS confirms your identity, you will receive an identity protection PIN to be used with any IRS filings during the year. You will be issued a new PIN each year. In addition to the IRS, file a report with the police and the credit bureaus.

Q. Is there anything else I should do to help protect my credit?

A. Yes. The credit bureaus have a program you can sign up for where they will monitor your credit and keep you notified of any apparent problems. You can also sign up with companies that offer identity theft protection such as Life Lock and Identity Guard. Costco also offers an identity theft program. Check your bank as well.

Q. What should you do if you haven’t filed taxes in several years?

A. Not filing your income tax return can get you into serious trouble. If you don’t file for one year, the odds are you are going to be afraid to file for the next year. And suddenly you haven’t filed for three, four or five years because you are afraid to contact the IRS.

Since the IRS is more interested in getting delinquent taxpayers back in the habit of filing tax returns and making up for past failures, non-filers do not have to worry about going to jail. As long as you cooperate and file your tax returns, the IRS is going to work with you.

It is best to file the back returns prior to the IRS contacting you. Even if you are not able to pay the back taxes, you should file the returns. Once the return has been filed, you may discuss with the IRS your payment options. You may find them surprisingly lenient.

You should also try to get the penalties waived if you have a reasonable cause. Sometimes the penalties can be waived anyway. The interest, however, cannot be waived except in rare cases. The goal if you owe money but cannot pay is to arrange a monthly payment program you can afford.

If the IRS comes after you before you have taken the steps to file the delinquent returns, it is still not too late to work out a solution. The IRS will accept a timetable for filing the back returns. You should also explore the possibility of an offer in compromise (OIC) to satisfy your debt.

Q. What is an offer in compromise?

A. The IRS accepts an offer in compromise to settle unpaid accounts for less than the amount owed when doubt exists that the liability can be collected in full. Your offer must reasonably reflect the potential collection amount if the IRS did a fire sale of all your assets. The IRS will not seriously consider an offer that does not at least equal the total amount of the equity shown on the taxpayer’s financial statements – i.e., your net worth.

In other words, the IRS will look at all your financial information to see if they can expect to recover all debt. If they feel it’s not possible, they will accept a reasonable offer enabling you to settle for what you owe. Then get an offer in compromise so you can settle for less. LL

This article is written by PBS Tax & Bookkeeping Service, a company that has been providing income tax and bookkeeping services to the trucking industry for more than a quarter-century. If you would like further information, please contact PBS at 800-697-5153 or visit their website at pbstax.com.

This column is the opinion of the writer and does not necessarily reflect the opinions of Land Line Magazine or its publisher. Please remember that everyone’s financial situation is different. This article does not give and is not intended to give specific accounting and/or tax advice. Please consult with your own tax or accounting professional.