Unfiled, past due, back tax returns.
Unfiled, back or past due tax returns is a real problem for the IRS and it is developing programs to catch up with non filers.
The latest estimates reveals that over 10 million taxpayers do not file tax returns causing a huge problem for the IRS.
As a result, the IRS is starting to step up their enforcement action by running matching programs to catch up with non filers. The IRS has increased its budget for technology that helps locate non-filing taxpayers.
In fact, they have targeted this problem as one of the higher priority problems because millions of tax dollars are not being collected. IRS use computer matching and software programs to help as well.
The IRS Information Reporting System (IRP) matches W-2’s and 1099’s to the tax documents submitted. Each year IRS runs these matching programs.
If you have not filed for years it will only be a matter of time till the IRS catches up. You must file before they turn your case into a criminal investigation.
IRS uses a Voluntary Disclosure Policy.
- IRS allows taxpayers to submit the missing tax returns and usually avoid criminal prosecution. However, all unfiled tax returns must be fully accurate If not, the chance of criminal prosecution is heightened. Filing a fraudulent tax return is not something you want to do.
- If you think this is a good course of action for you, be sure and do your best to voluntarily inform the IRS of your failure to file. If you hire a tax professional they will file a power of attorney with a written letter stating in the letter the anticipated date of filing. To IRS and this will serve as your attempt to voluntary file.
- You also need to file a correct tax return, make full payment if you can and make the disclosure before finding out you are under criminal investigation.
- IRS generally prosecutes 1700 cases a year. The average sentence is 25 months and they have a 92% conviction rate.
How many back years do I file?
This is a very tough answer to tell you without reviewing your individual case. It could vary between 3,6, or 7 years. As we get into the case we can make that call. We try to file as few years as IRS will allow. On no asset cases you can usually get by with 3 years. However, if you want social security credits to build up, the more years you file the better off you are.
Here is how “THE PROCESS ” works of filing late, back or unfiled tax returns.
1. Try to obtain all your back 1099’s or W-2’s. Also get copies of all your bank statements for the tax years not filed. This will give you your total income for the years involved.
2. The taxpayer should to the best of their ability reconstruct what they think their tax earnings and expenses were for each year. They can do this simply by using a monthly averages for each of the years.
As an example, how much was one month of your rent or mortgage, your car expenses, your food, your insurance etc. Arrive at a monthly figure and multiple it by 12. As a general rule your rent or mortgage is usually about 28% monthly expenses.
3. If you have bank statements, what were your total deposits for the year? Match this up with what you are claiming as total income.
4. If you have absolutely no records, call the IRS and ask them for an income report record of all third parties that have reported to the IRS. The IRS keeps on their computer system a list of all third party sources that have reported 1099’s or W-2’s. The IRS will send this to you within a couple weeks of your request.
5. Ask yourself, does this return make sense? The IRS knows how much it costs to live in each area of the country. The tax return must reflect your living style and conditions over the period of time in which you are filing. Do not round numbers to zero and do not use a pencil to fill out your tax return.
6. Prepare your tax return and send it to the IRS to the at the regional office closest to your residence.
7. If you are going to owe money, still file your tax return and contact us to find the type of settlement that works best for your life style.
It is always best to let a professional tax firm handle this situation. The professional firms know the standards and the methods used by the IRS and if you owe tax, they can probably work out a tax settlement as well. So if you have back,unfiled, or past due tax returns call us today.
What happens if you lost your W-2s or 1099’s?
If you lost your W-2(s) or 1099(s) call the business that you would have received them from. Ask their payroll department for copies. Typically businesses (your employer, banks, stock brokerage etc) will carry these records for 7 years.
If the business is out of business or did not keep copies you can call the IRS at 1-800-829-1040 and ask for a printout of the data for the year(s) you did not file. Although the IRS cannot provide you actual W-2s or 1099s, you will at least have enough information for your baseline tax amount to report on your taxes. IRS keeps these income reports on record for 7 years. You will be asking IRS for income reports.
What are the different ways IRS may contact me you did not file
The IRS starts off by sending you a letter or notice in the mail at the last address they have on file for you. IRS letters or what the IRS calls CP for collection process notices may let you know that they have no record of your tax return.
If you do not respond to these letters, then IRS may follow up with a phone call or a letter telling you that you have 30 days to get your returns filed.
If you fail to take corrective actions, stepped up process will take place. If the IRS can not get you to file through telephone call or letters you will get a or visit from a Revenue Officer.
At this point the case will be assigned to the local office to close the case. If you did not file after this IRS will file your tax return for you. This is called SFR or substitute for return.
If IRS files for you this is called Substitute for Returns or SRF
If the IRS files a Substitute For Return tax returns, they are prepared and filed pursuant to authority granted the Internal Revenue Service by IRC §6020(b) which authorizes the IRS to prepare an individual income tax return on behalf of the taxpayer.
In most cases, the Automated Substitute for Return (ASFR) system is used to evaluate the IRS Master File on the IRS CADE Computer and prepare an SFR for a wage earner or taxpayer without other unresolved taxpayer delinquent accounts.IRS will not do this unless they have repeated tried to contact you.
In order to conserve manpower and financial resources, tax cases having the following criteria will generally be handled by the ASFR system:
1. The taxpayer is not self-employed;
2. Total income is less than $100,000; Larger cases will be referred to audit,
3. The income shown on the IRS Information Reporting System totals more than 75% of adjusted gross income and total positive income on the taxpayer’s last filed return;
4. The tax year is no older than six years prior to the current tax year;
5. There is no current or pending “uncollectible status” on the account or Criminal indicator on the account.
6. The taxpayer’s address has been verified. If these conditions do not exist, the matter will be sent to a Revenue Officer in the local field office closest to the taxpayers residence to review and obtain pertinent information prior to referral to the Exam Division for creation of an SFR for the taxpayer. The Revenue Officer has the option to do the SRF also. When I worked for the IRS I oftentimes filed SFR’s for the taxpayers.
Do I still need to file even if I do not owe the IRS?
No!!! filing is not necessary.
Are Tax Penalties Deductible on Tax Return?
No, not on your life.
Where do I send late, unfiled or back tax returns to the IRS?
You can find a list of local IRS offices by going to IRS.gov.