Nine Tips to Get Back on Track with the IRS When You Haven’t Filed Tax Returns
Sometimes, people don’t file tax returns because they can’t pay. Other times, life happens, and they can’t get everything together in time to file. Regardless of the reason, not filing a required return is serious business for the IRS.
But there’s a way to get back in good standing: Gather all your information, research your IRS account, and file the returns. A tax pro can help you investigate which returns you need to file and how to submit them to the IRS.
“How many years back should I file?”
This is the most common question people with back tax returns ask. The answer lies in a little-known IRS policy statement.
IRS Policy Statement 5-133, Delinquent Returns – Enforcement of Filing Requirements, provides a general rule that taxpayers must file six years of back tax returns to be in good standing with the IRS. The policy also states that IRS management would have to approve any deviation from that rule.
Sometimes, IRS managers will require tax returns from even further back than six years, depending on the situation. These are the most common reasons the IRS requires returns from more than six years back:
There’s a large potential tax bill on the older returns. The most common red flags are Forms 1099-MISC, property sales, and large wages with no withholding.
There are business returns involved. The IRS will closely scrutinize business returns because the IRS knows that businesses have the largest potential for noncompliance.
A revenue officer is on the case. Delinquent-return investigations can involve local field collection personnel (called revenue officers), who perform in-depth investigations on nonfiling and collection.
Nine tips for filing back tax returns
Remember these tips when you’re filing back tax returns.
1. Confirm that the IRS is looking for only six years of returns.
Call the IRS, or your tax pro can use a dedicated hotline to confirm the unfiled years.
2. The IRS doesn’t pay old refunds.
You can only claim refunds for returns filed within three years of the due date of the return. Everything before that is lost.
3. Transcripts help.
It’s important to prepare an accurate return that matches IRS records. Trace your income history and request your wage and income transcripts from the IRS. Make sure your return reports all items on the transcript. Without this match, the IRS can question the accuracy of your return. If you made estimated tax payments that you can credit to any tax balances you owe, request your account transcripts to verify the amounts you paid.
4. There can be hefty penalties.
Years with tax balances due will have penalties, such as the failure to file and failure to pay penalties. These penalties combined can accumulate, over time, up to 47.5% of the tax bill. It’s important you prioritize this issue, to avoid potential tax evasion issues.
5. Request penalty abatement, if applicable.
Good news: With most back tax returns, you can ask the IRS not to charge you failure to file or pay penalties on balance-due returns. Use first-time abatement for the first year if you qualify. Otherwise, consider reasonable cause arguments for late filing and payment to get some relief from penalties.
6. The IRS may have filed a return for you.
The IRS usually starts this process, called a substitute for return (SFR), about three years after the due date of the return. When you file a return to replace an SFR, the IRS will closely scrutinize the replacement return and compare it to information statements on file. Because of that scrutiny, the IRS will take more time than usual to process the replacement return – more than four months in some cases.
7. Delinquent returns may need special processing.
If you have gotten a delinquent-return notice or an SFR in the past, you’ll need to file the return with specific IRS units for special processing.
8. If you owe and can’t pay, set up a payment agreement with the IRS.
Remember to get into an agreement if you can’t pay. There are several types of agreements, depending on what you need. If you don’t establish some type of payment plan with the IRS, a second wave of IRS enforcement – collection – will follow.
9. Authorize your tax pro to help.
You can sign an authorization to allow your tax pro to call the IRS to get information and transcripts for you – or you can sign an authorization to allow your tax pro to handle the entire issue with the IRS for you. Also, you or your tax pro can request a stay on enforcement activity, and follow up to ensure the IRS accepts the return.
You can get back on track
Learn exactly how to research your IRS account and file back tax returns with the IRS, or get help from a trusted IRS expert. Either way, don’t delay.
You’ll want to claim any refunds you might have before they expire, avoid penalties and interest, and fix any related tax problems so you can get back in good standing with the IRS.
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Related tax terms
IRS Wage and Income Transcript