Millions of people each year have unfiled tax returns. If you have IRS tax debt, you can be sure that the IRS wants their money. However, even if you’re owed money, you still need to file your tax returns.
It’s always better to file your taxes late than not to file them at all.
The IRS recommends: filing all tax returns when they’re due, even if you can’t pay your tax burden in full. We’re going to outline the exact process that non-filers need to follow in order to fix their unfiled tax returns.
Fixing Unfiled Tax Returns
The IRS may send a notice out to anyone with an unfiled return. If you receive this notice, you should send in your return to the location on the notice. If you haven’t received a notice, you can continue to do the following:
Obtain Your Lost Tax Forms and Documents
You will need to gather all of your income statements to file a tax return properly. The longer you fail to file, the more difficult it will be to collect these documents. You can follow these steps to obtain this information:
- Contact the business or employer that issued the documents. For example, if you worked for COMPANY ABC in 2016 and haven’t filed a tax return for this year, contact the company to see if they still have the 1099 or W-2. They may or may not have these documents still on file.
- Call the IRS at (800) 829-1040 or (800) 829-4059 to request a computer printout of your transcripts. The employer must send tax reporting documents to the IRS, which will keep them on file. Unfortunately, some income may be missing from the report received, but you will receive a minimum amount to add to the return.
You can also go through the tedious process of reconstructing your salary records by filling out:
The form will be attached to the tax return. You cannot add the missing 1099 income in the same way, so you must make your best guess if you did have 1099 income during the non-filed year.
You will need to fill out the appropriate year’s tax form. For example, you cannot fill out the 2021 form for taxes due in 2011. Instead, you will need to:
- Visit your local IRS office
- Call the IRS at (800) 829-3676
- Hire a lawyer or tax professional
State income taxes will also need to be filed in the same manner.
Preparing and Filing the Tax Return
You can prepare your taxes on your own or get help from the IRS. In the event that the IRS does help you with filing your return, there’s a good chance that they’ll miss a lot of deductions that you can claim.
Instead, you may want to consider one of the following:
- Filing the returns yourself, but you’ll need to be aware of each year’s tax laws to claim deductions properly.
- Hire a tax preparer to file late taxes, reduce mistakes and maximize refunds.
If you want to reduce the risk of the return being inaccurate or leading to an audit, you can hire a tax attorney to assist you. Working with a tax attorney will reduce the risk of an audit while also ensuring that you follow all of the processes and procedures to satisfy the IRS.
High-profile non-filers often do best when working with an attorney who will deal with the filing and has power of attorney to deal with the IRS.
What Can Happen to Non-filers?
If you don’t file your tax returns, the IRS may decide to file a substitute return on your behalf. The IRS will do its best to file the return properly, but you’ll often miss out on:
- Tax exemptions
The IRS will give you a 90-day letter with the proposed tax assessment. If you receive this letter, you can do one of two things:
- File your return
- Petition the Tax Court
If you do neither of these things, the assessment will stand and you may pay a higher IRS tax debt than you would if you filed.
Additionally, the IRS can decide to:
- Send the bill to collections. In collections, the IRS may decide to file a tax lien against you or may even place a levy on your bank account or wages.
- Penalties and interest. Failing to pay tax debt owed will lead to interest and penalties with no amnesty. The penalty can reach 25% of the unpaid taxes.
- Prosecution. In severe cases, when you fail to file taxes repeatedly, the IRS may pursue criminal prosecution. You do not want to get to this point.
The IRS uses the Information Returns Program (IRP) to identify non-filers. The automated system will scour 1099 income reports and W-2 statements to identify anyone who fails to file their tax returns.
Once identified, an investigation will be held to learn why you didn’t file.
Even if you think the IRS won’t catch you because it’s been a year or two since you haven’t filed, they have up to a 24-month backlog and will catch you in time.
The IRS wants you to file and will not monitor you more closely because you filed late.
Benefits of Filing Your Past Due Returns
Eventually, non-filers will need to file their unfiled tax returns and pay their IRS tax debt. The IRS explains that the benefit of filing your past due returns include:
- Claim your tax refund. If you don’t file within three years, you lose the refund completely.
- Receiving Social Security credits if you’re self-employed.
- Easier time obtaining loans because you need to have accurate, updated tax returns on file for financial institutions to be approved for most loans.
You’ll also avoid penalties and interest if you owe the IRS money.
Get Professional Assistance from Delia Law for your Unfiled Tax Returns
IRS tax debt will not go away. If you have unfiled tax returns, our experienced tax lawyers can help. While we have offices in Bethesda, New York, Los Angeles and San Diego, our team can help clients nationwide.
Schedule a free consultation with us immediately.