Late Filing of Federal Taxes

Often taxpayers fail to file a tax return or file taxes late when major life events happen. It’s easy to lose track. And for whatever reason they continue to put off filing their taxes because...

They worry if filing will call attention to their situation.
They cannot get the forms needed to prepare the earlier return.
They cannot find the records needed to file a return.
They cannot afford paying the taxes due in previous years.

Tax Filing Compliance

To remain in the IRS’ good graces, you must have tax filing compliance. Filing compliance is being up to date with the last six years of returns. The IRS set this as a policy in 2006, although they have not published this policy publicly. The IRS also reserves the right, with proper internal approval, to waive the 6-year compliance policy and extend it. This usually happens when they have access to your tax records past 6 years or if the IRS believes that enforcement beyond the six years is in the best interest of the Government.

Losing Your Refund

Although the IRS requires the past six years to be filed, you only have a time span of three years from the due date of the return to claim a refund. After the three year mark, you become ineligible for the refund (though this does not negate the requirement to file the return).

I Need to File My Taxes Late

For every day that you are late to file, the IRS adds penalties and interest to your tax debt. These fees can increase a tax debt by up to 25% of the original tax liability in the first five months alone. Even more shocking is that on average, tax debt will double every five years due to penalties and interest if left to grow.

Statistics show that penalties and interest are almost impossible to remove; interest always accrues and in rare occasions penalties are abated, and only through good argument based upon hard, documented facts.

Filing Back Tax Returns

Generally speaking, back tax returns can be filed by any CPA. However, many CPAs will not take these cases since tax returns are involved, which run a high probability of getting audited. Your best bet is to have a firm or tax preparer seasoned in filing back taxes file your returns for you. The best choice for back taxes is a firm of tax professionals who are knowledgeable about filing prior year tax returns and who will be able to check your income records against the IRS records.

These preparers will be able to pull your back tax records, find out what the IRS has filed for you, and foresee any possible roadblocks in getting you compliant.

Regardless of who you choose, keep in mind that when you sign the returns the IRS holds you responsible for them being correct. This means that should something go awry, the IRS will hold you responsible, not the tax preparer. This is yet another reason why you should take care in choosing who to file your late tax returns.

What Can the IRS Do If I Have Unfiled Tax Returns?

In short, if you do not file your tax returns, the IRS will file them for you (called a “Substitute for Return” or “SFR”). The IRS files these SFRs to assess a balance due based on their income records for you. Even worse, they give you no deductions or preferable filing status.

The IRS has more power than any other unit to take the money that is owed to them by any means that they can complete. They can levy your wages, put a tax lien on your home, or even empty you bank account. Don’t let old returns stack up. Get filed and current to that the IRS does not collect on you.