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Unfiled Tax Returns: Answers to your Most Common Questions

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Many people in the United States haven’t filed taxes for years. A lot of taxpayers fear that they will get into more trouble if they come forward and file tax returns for previous years. And many wonder how far back they need to go for their delinquent returns. There are others who don’t have the money to pay the tax liabilities and they think if they keep quiet the IRS may just forget about them. People who plan to file bankruptcy or seeking passport wonder whether they are required to show filed tax returns or not. Many are worried about whether they can be arrested and sent to jail for their unfiled returns.

So if you haven’t filed your taxes for quite a while and have similar questions, this post provides detailed answer to all of them.

If I have 10 years of unfiled tax returns, how far back do I have to go to pay back taxes?
The IRS has no time limit to collect taxes if you never filed a tax return - the statue of limitations never run out. But with limited resources, the IRS lacked the ability to identify the taxpayers who fail to file their returns. So they had a policy where you need to file returns for the previous six years in order to be considered tax compliant. You should be aware that each state has different statute of limitations and also for certain cases, the IRS can look back even further. Here you may be required to get the expert guidance from a tax attorney.

Now, the IRS uses various sophisticated software programs to identify and locate these non-filers easily. So if you fail to act, the IRS files a Substitute for Return (SFR) on your behalf. The SFR is filed based on the information from your 1099’s, W-2’s etc and these returns don’t include any deductions or exemptions. As this creates a larger liability than should exist, it is best for you to file the back taxes before the IRS gets the chance to file any SFRs against you.

What to do if I can’t pay the taxes? Do I need to file anyway?
While it is not a crime if you file a tax return but cannot pay the tax amount owed, it is considered a crime and you can get punished when you don’t file your tax return.

So even if you do not have a penny to pay taxes, it is still best to file your taxes. Also this will be the right time (i.e., when you have the least ability to pay) for you to negotiate with the IRS. In IRS terms, this is called “Reasonable Collection Potential” (RCP) and possibility of getting favorable results is much higher when your RCP is lowest.

Can the IRS penalize me for failing to file tax returns?
The longer you wait to file your tax return the more money you are going to be charged through penalties as well as interest. This is how the IRS warns the non-filers:

The failure-to-file penalty is generally more than the failure-to-pay penalty. So if you cannot pay all the taxes you owe, you should still file your tax return on time and pay as much as you can, then explore other payment options. The IRS will work with you.

So never avoid filing returns just because you can’t afford the tax money owed. Always file and then you can make use of various tax solutions to settle your owed taxes.

Going to file for bankruptcy: Is filing back tax returns necessary?
Yes, tax returns have to be filed otherwise your bankruptcy case can be dismissed. Also old tax debts can be discharged in bankruptcy but to make this happen, you should have filed returns for all the years that you expect the bankruptcy court to eliminate the tax debts for. For many, their non-filing of tax returns became a huge barrier for them in getting the bankruptcy discharge. So file all the missing returns before you apply for bankruptcy.

If I have unfiled tax returns can I still get a passport?
You won’t be denied for owing tax debts to the IRS but the state government department does discuss with the IRS to see if you have unfiled tax returns. Also the department can refuse to issue a passport if your tax matters have been escalated. If you are denied a passport for owing the IRS, you must file the back taxes in order to lift the denial.

How to file old returns if I don’t have all the information?
The law only expects you to file missing returns that is based on the best of your knowledge. But you may ask “Where I can get the old income details?” And this is where you will need the help of an IRS tax lawyer. They will order the IRS W&I transcript and get all tax reporting forms like W-2’s and 1099s within few hours. While you can request an IRS transcript by yourself, it will actually take several weeks to get it delivered to you via mail. The attorney can retrieve the old property tax bills from the city you live in. They will create profit and loss statements from your old bank statements.

Whatever your situation, never ever ignore your tax return filing. Just File! File to avoid getting nailed with big failure-to-file penalty.

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