My spouse didn't file taxes for 5 years - IRS consequences for unfiled 1099 income?

What about penalties? Won't those be massive after 5 years? I heard they can add like 25% to what you owe per year or something crazy.

Thank you for this detailed explanation. Our CPA mentioned something about a "streamlined installment plan" but wasn't very clear about whether we'd qualify with such a large amount. Do you know what the maximum amount is that can be on a payment plan? And what kind of interest rate does the IRS typically charge?

The penalties can indeed be significant. The failure-to-file penalty is typically 5% of unpaid taxes per month, maxing out at 25%. There's also a failure-to-pay penalty of 0.5% per month, up to 25%. Plus, interest compounds daily on both the unpaid tax and penalties. So yes, penalties and interest can substantially increase the original tax amount. Regarding installment plans, the streamlined installment agreement has changed over time. For debts over $50,000, you'll likely need to provide financial statements. The IRS can allow up to 72 months for standard plans, though larger amounts might qualify for extended terms. The current interest rate the IRS charges is federal short-term rate plus 3%, which adjusts quarterly (currently around 7-8%). They'll also add a failure-to-pay penalty reduced to 0.25% per month while on a payment plan.

Does it actually work with older tax years? Like can it help with returns from 5+ years ago? My brother is in a similar situation (3 years unfiled) and I'm trying to help him figure out what to do.

I'm skeptical... how does an AI know what qualifies as a legitimate business expense better than a CPA? Wouldn't the accountant already be looking for these deductions?

Yes, it definitely works with older tax years! I used it for returns going back 4 years and it worked perfectly. It's particularly good with historical data since it can process years of bank statements and receipts all at once, which would take a human forever to review manually. Regarding how it works compared to a CPA - it's actually complementary to what CPAs do. Many accountants don't have the time to go through every single transaction from years ago, but the AI can analyze every line item from years of statements. My CPA was actually impressed with what it found. It's not replacing the accountant's expertise on tax law, but it's doing the tedious transaction review that humans might miss things on. In my case, it found legitimate business expenses like partial utilities, forgotten equipment purchases, and mileage that I had documentation for but had completely forgotten about.

How does this even work? The IRS phone system is literally designed to be impossible to navigate. Do they have some secret backdoor?

Yeah right. Nothing gets you through to the IRS faster. They're deliberately understaffed to make collections difficult. I'll believe it when I see it.

It's not a backdoor - they use technology that navigates the IRS phone tree and waits on hold for you. When they reach an agent, you get a call connecting you directly to that person. Basically they're waiting on hold so you don't have to. Regarding the skepticism, I was doubtful too. But after trying to get through myself for days with no success, I was desperate. It worked exactly as advertised - I got a call back when they reached an agent, and I was able to set up an installment agreement directly. Saved me literally days of frustration. For something as serious as a large tax debt, being able to actually speak with a representative made a huge difference in understanding our options.

Oh god, I hadn't even thought about that! Is the self-employment tax calculated on the gross 1099 income or after deductions? And what's the estimated tax penalty usually amount to?

Self-employment tax is calculated on your net profit after deductions (thankfully). So all those business expenses will reduce both your income tax and SE tax. That's why maximizing legitimate deductions is so crucial for 1099 workers. The estimated tax penalty varies based on how much you should have paid quarterly and current interest rates. It's basically an interest charge for not making timely payments throughout the year. It won't be your biggest concern compared to the failure-to-file and failure-to-pay penalties, but it's another thing that adds up. Form 2210 calculates this penalty, and sometimes you can get it waived if you have a reasonable cause, but after 5 years that might be difficult.

This is actually super important. If the IRS has already sent notices of deficiency or started collections, the approach is completely different than voluntary disclosure.