I heard once that if you don't file your return yourself, the IRS does it for your somewhat. Is there any truth to that?
A: Yes. Sometimes the IRS will file a return based upon whatever income information it has about you, without anything other than the standard deduction. This is roughly, a 1040EZ form, and it is almost always at least three years after the failure to file, because it is at that point that you cannot claim any other miscellaneous deductions from your income.
If you work for cash, or for customers/clients who do not give you a 1099 at the end of the year, then the IRS will have no records. But, if you receive a W-2 from employment, then the IRS will have at least that much info, and it will file a return and then commence to collect on it, if you don't file it yourself.
My problem is that I have had several jobs in different states over the years, and I no longer have any documentation to file the proper returns. I don't know exactly which years have/ not been filed, etc. What can I do to remedy this?
A: See this link to obtain copies of the information from your W-2 returns over the past 10 years.
I'm worried that if I don't settle with the IRS they will come after me, but at the same time if I start filing old returns and trying to settle then I'd become a target. The original credit I took was for $7500 and I know the interest has been huge every year since. The IRS website states I am not eligible for the OIC, and that I should consider the installment payment. I'm worried with the large interest and my low income that it will be a never ending circle of payments. What would cause the IRS to place a tax lien or take other action? What are the possibilities? Recommendations?
A: The IRS prequalifier rejects practically everyone. It's useless. The IRS wants the amount of money that it believes it can collect from you during the next 5 years. That is a highly subjective analysis. The only way that you will know is to actually fill out the forms and submit the offer. And, you can't do that without filing the returns. But, even if it's a 100% installment plan, you will at least be clearing up your tax liability. The alternative is to never pay taxes again and remain in the background until the IRS files all the returns for you, and then starts levying your wages. It won't take all your money. Probably 15-25% of your disposable/after-tax income. And, you'll just keep on paying until it's paid off (or you die, or become unemployed -- whichever comes first -- yes, I'm serious).
As far as filing a lien, once the IRS has established your debt, it will file a general lien, to protect its interests. But, if you don't have any property with equity value (home, car, etc.), then the government is not going to come to your home and start selling your furniture. It will just wait and see what happens to you. If you suddenly inherit some money, then Uncle Sam will just as suddenly appear and take the share.
The point is that the longer you wait, the further behind you get, and eventually you will pass the point of no return, where the only way out will be to win the Powerball lottery. Otherwise, you will have to live with an ever increasing tax liability, because you cannot even get rid of the debt in bankruptcy, until at least three years after the due date of the tax return, or 240 days after the IRS issues a Notice of Determination of Tax Liability (for each independent tax return).
Hope this helps.