Do all of my tax returns need to be filed to release an IRS wage garnishment?

IRS problems usually start when taxpayers fall behind on their tax returns and don’t file their returns for a few years. While it may take a little longer for the IRS to assess the tax against you, it really stops you when you’re ready to start negotiating with the IRS to resolve your tax liability.

A client recently told me that all his returns had been filed, but he only owed money to the IRS for a few years. His employer had just informed him that he was about to start an IRS wage lien on his wages unless he could release it before the next payroll (about 5 days). Since I thought all was well and the client did not owe an extraordinary sum (less than $10,000), I thought this would be a quick and easy representation. When calling the IRS to negotiate the release of the lien, I was informed that there were, in fact, pending tax returns that needed to be filed.

Before the IRS will negotiate with you whether it is negotiating the release of a wage garnishment or asking them to accept an offer in compromise, you must have at least the last six years of tax returns filed. If you don’t, the IRS won’t start doing business with you.

I always urge my clients to go ahead and file their tax returns on time every year, whether they can pay the tax or not. Because? For two main reasons: First, by applying, you immediately avoid the IRS fail-to-filing penalty. This can add up quickly. The penalty for non-presentation is 5% of the tax owed per month up to a maximum of 25%. Second, when you file the return, the statute of limitations begins for how long the IRS will collect the tax you owe. If you never file the return, the clock never ticks and you will stay with the IRS for the rest of your life or until you finally pay the taxes, penalties, and interest.