Several taxpayers have not filed taxes for nearly a decade. In fact, some have never filed their taxes. So many wonder about what will be the statute of limitations for unfiled tax returns. Some people are not in a position to pay the IRS, so they wonder if it is better to file only after when they can afford or if they should file in any case. Some have doubts about whether the officers will ask for up-to-date tax returns when they file for bankruptcy or apply for a passport. Some are concerned if they’ll be arrested for not filing returns.
This article will provide answers to the most frequently asked questions about unfiled tax returns.
Suppose I haven’t filed tax returns for years. Do I need to file all the missing returns?
The IRS does not have any time limit to recover taxes if you never filed a tax return – the statute of limitations never run out. But they have only limited resources, so the policy is that the taxpayers must file returns for the past 6 years in order to become tax compliant. In certain cases, you may be required to speak with a tax lawyer to determine if you need to go back even further.
Many has changed during the last 10 years and now, the IRS is getting much better at identifying people’s income sources and preparing a Substitute Filed Return (SFR) for taxpayers. So if SFR is filed against you, then you will have no choice rather than to file returns for all those years that’s mentioned in the SFRs.
What if I owe back taxes but can’t pay? Should I really have to file anyway?
Absolutely! It is okay to owe the IRS back taxes, but failure to file tax returns will be considered as a crime.
So even when you can’t pay anything to the IRS, it is still in your greatest interest to file your return. And the perfect time to have negotiation with the Internal Revenue Service is when you’ve got less money to pay for. In IRS terms, this is called as “Reasonable Collection Potential” (RCP). Deal with the IRS, when your RCP is lowest.
How big is the IRS penalty for unfiled tax returns?
This is exactly what the IRS says:
“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 try to avoid filing returns just because you can’t pay for the tax money owed. Just file. You can do something about settling your tax debts later on.
Do I have to file all back taxes before I file personal bankruptcy?
Yes! you have to. Also by filing bankruptcy, it is possible to discharge most of your owed taxes. But to achieve this, you need to show your filed taxes to the bankruptcy court for all those years that you want to get discharged of the tax debts. For many people, non-filing of taxes became a huge hurdle for them in getting the bankruptcy discharge. So file all of the missing returns before applying for personal bankruptcy.
Can I get the passport if I owe the IRS for back taxes?
In general, passport issuance will not be denied merely because you owe money to the IRS however the state government has the ability to deny or revoke your passport for certain tax violations. When the passport issuance is denied, you must pay the tax arrears along with penalties and interest to have the denial lifted.
How can I file old returns if I don’t have all the information?
The law wants people to do old returns to the best of their knowledge. But you may ask how to get the old tax records and financial details? Here, with the help of an IRS tax attorney, you can obtain all the missing information. They will quickly get all of the old tax forms such as 1099s and W -2’s through by pulling the W&I transcript from the Internal Revenue Service. For old property bills, the IRS attorney will get in touch with city assessor and collect particulars from them. For business owners, these tax professionals will create profit and loss statements from their old bank account statements.
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