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Unfiled Tax Returns

March 14, 2012

Once a person doesn’t file a tax return for any reason, it is common for that person not to file subsequent years.   As a result, it is easy to find yourself having not filed numerous years of taxes and being paralyzed by the fear of not knowing what to do or even where to start to get the missing returns filed.  One this panic sets in, the delinquent taxes usually don’t get addressed until after the IRS either garnishes wages or levies a bank account to collect the delinquent taxes.

It is important to understand the process that happens when you don’t file a tax return.   At some point in time, the IRS will discover that there are 1099s, W-2s, or other tax documents that they have received but that have not been matched up to a filed tax return.  It is these documents that will provide the IRS with the information that they need to file a return for you.  The IRS will file a Substitute For Return (SFR) on your behalf.  It is important to realize that when the IRS files a SFR, they are not looking out for your best interests nor are they trying to maximize your deductions.  The IRS simply adds up all of the income that they are aware of, via the 1099s and w-2s, and use the standard deduction to calculate the tax that they believe is owed.   You are given credit for any estimated tax deposits or payroll tax deductions you have made then they add the late filing penalties, interest, and any other applicable penalty.   Clearly, this is not the way anyone wants their tax return filed for them.

Recently, we had two cases where the client had a substantial number of unfiled returns and in both cases, we were able to provide substantial relief to the client.

In the first instance, the client had not filed tax returns in 10 years and had no record of his W-2’s and other sources of income. Not having the required information made the tax return preparation difficult, however, we requested that the IRS provide all of information it had and then we worked with the client to get his returns prepared.

In the second case, the client also had unfiled tax returns for 10 years. And as a result, the IRS made tax assessments based on reported sources of income and prepared a SFR. The client was under the impression that the balance owed was over $165,000 based on these SFRs and did not know how to resolve this overwhelming problem. Here, too, the client could, only, provide limited documents and records. We contacted the IRS to obtain records of sources of income. We then prepared accurate tax returns for each year in question amending the SFRs resulting in a new outstanding tax balance of approximately $19,000. We were successful in getting the tax liabilities reduced by merely preparing corrected tax returns.

These are great examples of cases where it seems like the client was in a hopeless situation but with a little hard work, great results were achieved.  So don’t be afraid to call my office and get the help you need to get your tax problems resolved.

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