If you have unfiled tax returns and the IRS is looking for them as they always do, you should know a few things:
1. The IRS has income and other information about you. You can get the info from them.
The IRS maintains a record of w-2 forms, 1099s, mortgage interest and other items that are legally required to be reported by employers and others on your behalf. If you haven’t filed in quite a while, you will probably need to ask the IRS for your “income history” for each year that is un-filed to help you in recreating your income and deduction numbers. You shouldn’t just rely on the IRS’ documents alone to re-create your history however.
2. The IRS typically requires the last six years’ returns be filed to be considered “compliant”….but,
IRS Policy Statement 5-133 and the Internal Revenue Manual at 22.214.171.124, tell the IRS to consider you to be “in the system” for purposes of working with you if the last 6 years have been filed. However, that doesn’t mean that the IRS will only ask for the last 6 years of returns. It may ask for returns that are older than 6 years. You need to talk to an experienced tax resolution attorney before deciding which returns should be completed and which should be filed.
3. Sometimes it makes sense to leave the IRS’ Substitute Tax Return in place and not do your own tax return.
If you don’t file a tax return for a while, the IRS will do it for you. It will do it wrong because it will only treat you as single and take no itemized deductions. This often results in really large debts as well. BUT…the IRS only has 10 years to collect a tax debt and even though it doesn’t have to respect this 10-year rule if you didn’t file the return, it usually will. So, if several years have passed since the IRS did the incorrect return and if your correct return will still leave a substantial debt, it may not be wise to file it in an effort to replace the IRS’ Substitute Return. Again, talk to an experienced tax resolution attorney about this.
4. Before filing the returns it is wise to determine how you are going to deal with the debt.
There are several options for most people. You may be able to settle it for a fraction in an IRS Offer in Compromise, pay a small amount or nothing in an IRS payment plan or non-collectible status, or you may be able to use the Payment Plan or Non-Collectible Status help you to get to bankruptcy and possibly wipe out most or all of the debt. If you cannot pay the debt in full in a reasonable amount of time, then bending over backward to get the returns just right especially if there are complicated expenses and deductions that must be estimated may be a waste of time. In fact, in some circumstances the higher the debt the better…again talk to an experienced attorney about why I say that.
5. In certain circumstances, the returns need to be filed very quickly
There are several common situations that mean you should get the returns done and with the advice of legal counsel get the returns filed….asap.
The IRS is getting ready to file a Substitute Tax Return
If the IRS is getting ready to file a Substitute Return and you know two things, one, that the debt will be high whether they file it or you do, and two, you may be a bankruptcy candidate down the road…you need to beat the IRS to the punch. Walking it into the local IRS office and getting a copy stamped isn’t a bad idea. The reason, if they beat you to it, the principal debt may not ever be dischargeable in bankruptcy.
The IRS is garnishing your wage or levying your bank account
Missing tax returns will create a situation in which the IRS can simply ignore your request to resolve the collection activity.
3 years are about to pass since the date the return was due to be filed and you expect a refund
If you file the return 3 years and 1 minute late, the refund you were owed is legally confiscated by the IRS and isn’t applied to your other debt.
6. Having someone with an experienced set of eyes review your tax return history is usually a wise investment
It’s important to have someone who deals with the IRS all the time, review the situation.
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