If you don't file your taxes, the IRS will do something called a “substitute for filed return.” (or SFR). When preparing your SFR, the IRS tries to assume the worst tax bill you can imagine. They send you notices to say “hey – file your taxes before we do it for you! You're not going to like what we charge you.” If you ignored these notices about your unfiled tax returns we totally understand; these IRS notices are hard to understand and can get really scary unless you deal with them every day like we do.
When you file a correct return to lower your SFR assessment, that is something called an “audit reconsideration.” The IRS does give a bit of extra scrutiny to the return processing, so it is important that the returns are done very carefully. When you file past due tax returns, your returns processing needs supervision. Either by you if you are up for it, or a tax resolution professional.
The second thing is time. Did you know that if you don't file your taxes, the IRS has forever to assess taxes? If you do file your taxes, the IRS effectively only has 6 years since your filing date to assess you anything additional.
If you don’t file your back taxes, you are leaving a potential tax bill open…indefinitely. It's important you act quickly. Sometimes people don't file their return because they are afraid they are going to end up with a huge tax bill. What many people don't know is that you can negotiate with the IRS to lower your tax liability. Learn all about your options here.
The third thing is time again! If you have a refund coming to you for a tax return, you only have a limited amount of time to claim that refund when you file your return. There are two rules at play. First is the two-year rule. If at any time in the last two years you paid the IRS money, you can claim that as a refund. Let's say that the IRS levied your bank account for $1000 last month for a tax bill you owe from 2001. If you filed your return, you know you actually wouldn't owe money. As long as you file you return within 2 years you could get that $1000 you paid back.
However, if you wait more than 2 years to file your back taxes after a payment, the IRS will keep your refund, unless the three year rule applies.The 3 year rule works like this: You cannot claim a refund for a tax return that was due more than 3 years ago. For example, right now it is June 2013. If you tried to claim a refund for 2010 and you never filed a extension the IRS gets to keep it. If it is after April 15th 2013, even if the IRS owed you one million dollars they would keep it all. And there is not one thing you could do about it.
The fourth thing you need to know about unfiled tax returns is documents. You may be thinking, well I'd love to file my old returns but I lost all my tax documents. We have a couple of tricks we use to file old tax returns properly. First, we request any missing tax forms, like W-2s, 1099, mortgage interest statements, from the IRS. Second, if you are missing business records, there are proven, legal ways to recreate documents that will be accepted by the IRS during your “audit reconsideration.”
So don't let missing documents get in the way! All of that can be dealt with totally legally with no problems down the road. Remember, when it comes to unfiled tax returns, the IRS rules are written to favor the IRS. Do yourself the biggest favor you could possibly do today and take action. If you are not sure that you can do all of this yourself and you don't fully understand the rules, hire a tax specialist who knows. If you've been procrastinating, contact us. We can help. Call 888-727-8796 or email firstname.lastname@example.org. We'll get you set up with a free consultation to help take care of you and your worries.