Filing Back Taxes
(This article concerns filing back taxes and doesn’t discuss the various ways to take care of paying (or settling) the past due tax amounts. This is a separate issue.)
It’s never too late to file back taxes.
If you haven’t filed tax returns in a few years, or have skipped filing taxes for some years, you may be surprised to find out that filing your late tax returns could be the quickest and easiest way out of tax trouble.
Do people ever get away with not filing tax returns? Frankly, the answer to this is yes. The IRS, despite all their power and fear they invoke, simply doesn’t have the resources to keep up with everybody. However, they do a much better job of it now than in past years, and I wouldn’t necessarily recommend trying to avoid them as a solution to solving your back tax problems.
Although, technically there is no statute of limitations on unfiled tax returns, if enough time has passed, generally around ten years, and the Internal Revenue Service hasn’t already instituted any action or investigation on you, then it is quite possible to not file that particular tax return, without any adverse consequences, even if you otherwise have a filing requirement. I could not, however, ethically advise someone to follow this course of action, or lack thereof.
As a tax professional, with a taxpayer’s permission, I would be able to obtain a taxpayer’s records from the IRS. An analysis of these records, or transcripts, would enable me to determine which tax returns have been filed, which ones need to filed, and the amounts and sources of income that were reported to the IRS by others (people who paid you.) This information is essential to determining the proper strategy and timing in resolving your back tax issues.
There are several good reasons to catch up on filing your back taxes. Of course, one of them is that you no longer have to worry about the IRS doing it for you. This is what the IRS calls a “Substitute for Return.” This is when the IRS prepares a tax return based on the income information (W-2s and 1099s) that has been provided to them and computes the tax due, with no deductions, dependents or credits. Then they send you a bill. By the way, this does not prevent you from going ahead and filing your own return, with your deductions and credits. However, if the collection statute of limitations is about to run out on the SFR, then you may want to just leave it alone. This is a judgment call that a qualified tax professional who is familiar with the IRS statutes of limitation should be able to assist you with.
Sometimes taxes can be discharged in bankruptcy. But this would not apply to any tax year for which an original tax return has not been filed. An IRS “Substitute for Return” would not count for this purpose. Also, in order to arrange an IRS installment agreement (payment plan) on unpaid taxes, or before submitting an Offer in Compromise (tax settlement), all tax returns must be filed.
If you hold any kind of occupational license, most states will require that all state tax returns be filed before issuing or renewing a license. We also do back state taxes.
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Carl Wiens, Enrolled Agent
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Oklahoma City, OK. 73122
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