Have you ever had that feeling of regret when you remember something you should have done but didn't do it? Well, that's the feeling many taxpayers get when they realize that they've missed filing taxes for not just one year, but several years. I am talking about unfiled taxes, and today, we are going to uncover the big mystery surrounding them: just how far back can the IRS go when it comes to unfiled taxes? Get ready to learn how to deal with taxes, one of the most unpleasant parts of adult life.
Filing Late Tax Returns: What You Need to Know
Filing late tax returns can be a daunting task, but understanding the process and consequences can help alleviate some stress. When dealing with unfiled taxes, keep the following points in mind:
-There is no statute of limitations for the IRS to assess and collect any outstanding balances if you haven't filed a tax return. Normally, the obligation to submit tax returns for those that are over six years old is not pursued. Nevertheless, certain exceptional situations, for example, tax evasion or important tax debts, can lead to the enforcement of such filing requirements.
Filing your taxes after the due date does not necessarily increase the chances of an audit since the IRS usually takes action on tax matters within three years of the return's due date.
-If you fail to file a return and owe money, the IRS will impose a failure-to-file penalty and interest on your balance. If you don't file your tax return, the authorities have the power to file a substitute return on your behalf, impose a tax obligation, and initiate debt collection proceedings. This could involve wage and account garnishments or a taxation lien.
After submitting an overdue tax return, the IRS usually has up to three years to conduct an audit, but if you misreport your gross income by 25%, they have up to six years to do so. Additionally, the IRS has up to ten years to retrieve the evaluated balance.
-To avoid penalties and interest charges, it's important to promptly address any unfiled tax returns and seek assistance if necessary. Feel free to reach out to the IRS if you have any questions or concerns. They provide different types of assistance, including payment plans and penalty waivers, to qualified taxpayers.[1][2]
Understanding Delinquent Filings with the IRS
Understanding Delinquent Filings with the IRS is crucial for taxpayers who have not filed their taxes or are facing penalties for late filings. Here are important points to remember about delinquent filings:
-IRS audits are conducted to ensure accuracy and proper tax payment by taxpayers. Failing to file a tax return can put you on the IRS's radar and cause them to take action.
-If you fail to file a tax return and meet a certain income threshold, there's no statute of limitations on your tax debt for that year. The IRS usually requires tax returns for up to six years. However, they may require returns for longer periods if they suspect illegal activity or significant tax debt.
-Not filing your tax returns can have serious repercussions, such as the imposition of failure-to-file fees by the IRS, accrual of interest on any unpaid balance, generation of substitute returns based on third-party data, and initiation of the IRS collection process, which may encompass wage and account levies, as well as placing tax liens against you.
-You can lose your tax refund if you don't file taxes within three years from the filing deadline. However, if you owe taxes, the IRS can go back much further in time to collect your tax debt.
3. Confirming How Many Returns You Owe
To confirm how many returns you owe, follow the steps below:
1. Contact the IRS directly and request them to provide information on the number of years you have unpaid taxes.
2. Ensure that the data you receive from the IRS is accurate and reliable, as it is essential to know which tax returns to work on.
3. Communicate with the IRS to show that you're making your way toward completing your late filings.
Keep in mind that you might not receive a tax return due to late filings. The IRS usually doesn't issue extended income tax refunds for any filings that occur past their due date. Furthermore, the IRS can provide you with wage and income transcripts, which are essential for tracing your income tax history. Make sure to request and review these transcripts to stay informed about your tax situation.
4. Not Getting a Tax Return? Managing Expectations
It's common for taxpayers to have expectations of getting a tax return, but it's essential to manage those expectations when dealing with unfiled taxes. Here are some important facts you should be aware of:
- You are required to file your last six years of tax returns to be in good standing with the IRS.
- Unfortunately, you cannot claim refunds for returns filed beyond three years of their due date. Any refunds prior to that will be lost.
- To ensure accuracy when filing back taxes, request your wage and income transcripts from the IRS to verify your tax payment and income history.
- Be prepared for possible penalties, such as failure to file and failure to pay. In some cases, you may request leniency from the IRS by qualifying for a first-time abatement or presenting a reasonable cause for the late filing.
- The IRS may have already filed a "substitute for a return" on your behalf, which will be closely scrutinized when you submit your actual return.
- Delinquent returns may require special processing at specific IRS units.
- Various payment plans are available if you owe money to the IRS, and it's highly advisable to set up a payment arrangement to prevent further issues with collections.
5. Reviewing Wage and Income Transcripts
Reviewing Wage and Income Transcripts is essential for taxpayers who haven't filed their tax returns. Here are some key points to keep in mind while handling this process:
- It is crucial to prepare an accurate return that matches the IRS records. To achieve this, trace your income history and request your income transcripts from the IRS. Ensure your return reports all items on the transcript, as any mismatch can lead to questions from the IRS about the accuracy of your return.
- According to the IRS policy statement, delinquent taxpayers must file six years of back tax returns to be in good standing. However, the number of years may vary depending on individual circumstances such as potential large tax bills on older returns, type of business, or having a revenue officer on the case.
- Taxpayers can only claim refunds for returns filed within three years of the due date of the return; anything before that is lost.
- If you made estimated tax payments that can be credited to any outstanding tax balances, request your account transcripts to verify the amounts paid.
- Delinquent returns may have hefty penalties, such as failure-to-file and failure-to-pay penalties. Combined, these penalties can accumulate up to 47.5% of the tax bill over time. It is important to handle this issue promptly to avoid any potential problems.
6. Preparing for Penalties on Late-Filing Taxes
When preparing for penalties on late-filing taxes, it is essential to be aware of the consequences and steps to take in order to get back on track with the IRS. Here are some key points to consider:
- Filing past due tax returns as soon as possible can limit interest charges and late payment penalties.
- If you are due a refund from withholding or estimated taxes, it is necessary to file your return within three years of the due date to claim it.
- The IRS may hold income tax refunds if records show that one or more income tax returns are past due.
- Remember, the IRS can file a substitute return if you fail to do so, which might not give you credit for deductions and exemptions you are entitled to.
- To help prepare a past due return, request wage, and income information by calling the IRS or contacting your employer.
- According to the IRS policy, delinquent taxpayers generally need to file six years of back tax returns to be in good standing.
- Prioritize filing older returns with potential large tax bills, business returns, and cases involving revenue officers.
- Keep in mind that the IRS has penalties for failure to file and failure to pay, which can accumulate up to 47.5% of the tax bill.
7. The IRS Payment Plan: Your Options
The IRS Payment Plan offers various options to taxpayers who have unfiled taxes or are unable to pay their tax debts in full. Here are some key points to consider:
- The IRS focuses on taxpayers with unfiled tax returns and encourages them to file as soon as possible. Taxpayers should request copies of missing forms, such as W-2, 1098, 1099, or 5498, from their employer, bank, or other payer. The IRS provides transcripts with the necessary information to help taxpayers file their returns.
- To get back in the IRS' good graces, you typically need to file the last six years of tax returns. However, the IRS encourages taxpayers to file all missing tax returns if possible.
- Penalties for failure to file or pay taxes can be reduced or eliminated through various programs such as installment agreements, offer in compromise settlements, and the currently not collectible status. In some cases, bankruptcy may resolve tax debts.
- The IRS may have filed a return on your behalf called a substitute for return. Filing an actual return to replace this substitute will be scrutinized closely by the IRS and may take longer to process.
8. Exceptions to Penalties for Late Filers
In some cases, the IRS provides exceptions to penalties for late filers. Here are some factual data regarding these exceptions and unfiled tax returns:
-There is no IRS statute of limitations on unfiled tax returns, meaning the agency can go back an unlimited amount of time. However, in many cases, the IRS only looks back six years (1).
-Serious consequences can arise from unfiled tax returns, including interest penalties and collection actions. The IRS may send various notices to urge you to file a return, and if unresponsive, the IRS can file a "substitute for return" (SFR) on your behalf (2).
-If you fail to file a federal return by the due date, you face a failure-to-file penalty: 5% of the balance for every month you don't file, with a cap at 25%. If you file at least 60 days late, your minimum penalty is the lesser of $205 or 100% of your tax owed (2).