In a struggling economy it is not surprising that taxpayers get caught short sometimes regarding their taxes. We have already dealt at length in the past with “trust fund” penalties and the problems with those. We are now going to discuss the average taxpayer who finds himself or herself on the short end of straw in collections. The first step should always be to file all returns that are due regardless of whether you can pay. The IRS cannot entertain any collection alternatives until you are compliant. Further, if this gets to bankruptcy, dischargeability may focus on whether a return was filed or not. So, always file the return and then figure out how to pay. This reduces penalties assessed and allows for a meaningful discussion early on. The same goes for state income taxes. Further it is a crime to not file tax returns. If the IRS prepared a return for you (called a substitute for return), you’ll have to file an amended return (Form 1040X). What do you do next? Stay tuned.