Thanks for mentioning the first-time penalty abatement option - I had no idea that existed. My tax history before this was pretty clean since I was an employee with standard W-2 income. Does the size of the penalty affect whether they'll approve the FTA? And how do I actually request it - is there a specific form or do I need to call?

The size of the penalty doesn't technically affect FTA eligibility. The IRS looks at your compliance history, not the dollar amount. You can request it by calling the IRS directly, writing a letter, or having your tax professional include it with other negotiations. There's no specific form, but you need to explicitly ask for "first-time penalty abatement" and explain that you have a clean compliance record for the three prior years. If you call, be prepared for the agent to possibly deny it initially. Many frontline agents aren't fully trained on FTA policies. You might need to escalate to a manager or submit the request in writing. Your medical circumstances actually give you two separate arguments for penalty removal - both FTA and reasonable cause, which strengthens your position considerably.

Totally agree! My cousin ignored IRS notices and they took his car and froze all his accounts. It was a nightmare trying to get basic living expenses after that. The IRS doesn't mess around once they start the levy process.

Filing your 2024 taxes shouldn't be directly affected by your unfiled 2021 return. Each tax year is technically treated separately. The IRS system won't automatically block you from e-filing your 2024 return just because 2021 is missing. However, there can be indirect effects. If you're claiming certain credits or deductions in 2024 that relate to prior year information, there could be verification issues. Additionally, if the IRS has already started sending you notices about your unfiled 2021 return, it's best to address that situation promptly rather than filing a new year while ignoring the past issue.

Yeah the IRS got a funding boost recently and they've been upgrading their systems to better track unfiled returns. They're definitely sending more notices out. But I've heard they're still prioritizing high-income non-filers over people who made under $25k. They go where the money is!

Is there a specific form the IRS uses to collect this financial information? I'm dealing with a different tax issue but also need to show my financial situation.

Yes, the IRS typically uses Form 433-A for individuals or 433-B for businesses to collect financial information when setting up payment plans or considering settlements. It's extremely detailed - asks about all income sources, expenses, assets, and liabilities. They may also request supporting documentation like bank statements and pay stubs. I recommend starting to compile this information early because it can take time to gather everything. Also, be completely honest on these forms - the IRS can verify much of this information, and additional dishonesty at this stage would only make your situation worse.

This is the best advice here. The distinction between poor documentation and intentional fraud is HUGE in the eyes of the IRS and the law. Let your attorney frame the situation appropriately.

Thank you so much for this warning. I definitely would have just blurted everything out in panic if I hadn't read this. I'll make sure to let the attorney handle all communication and not volunteer anything about what I was thinking or intending. I've contacted a tax attorney who specializes in these cases and have an appointment tomorrow morning. I'm going to bring copies of all the audit letters and my previous tax returns. Should I prepare anything else for this first meeting?

How do you check your transcript? Is that something on the IRS website?

Yes, you can access your tax transcripts through the IRS website by creating an account at irs.gov/account. Once logged in, you can request various transcript types - the "account transcript" is most useful for tracking audit status as it shows all activity on your account. If you're not tech savvy or have trouble with the online verification, you can also request transcripts by mail using Form 4506-T, but obviously that takes longer to receive.

I tried calling the number on my audit letter but keep getting voicemail. Is it worth leaving messages or is there a better time to call?

Thanks so much! That's super helpful. One more question - did you have to do anything special to indicate that you made contributions for two different tax years in the same calendar year? That's the part I'm most worried about messing up.

For contributions to different tax years, you report the contribution for the previous tax year on that year's return (so your 2023 contribution would be on your 2023 return), but all conversions go on the return for the year when they actually happened. If you already filed your 2023 return without reporting the contribution, you'll need to amend it. In FreeTaxUSA, go to the "Amend 2023 Return" option from your account page. Then both conversions will be reported on your 2024 return since they both happened in 2024.

You're in the ideal situation for a backdoor Roth! With no existing Traditional IRA balances, you don't have to worry about the pro-rata rule. It is indeed as simple as: 1. Report the nondeductible Traditional IRA contribution 2. Report the conversion to Roth Since you have no pre-tax money in any Traditional IRAs, your conversion will be tax-free (except for any earnings between the contribution and conversion). The pro-rata headaches only come into play when you have existing pre-tax money in Traditional IRAs. Consider yourself lucky!