Delinquent Tax Preparation

People don’t file taxes for several reasons, but the most common is simply that there’s a year where they either suspect or know that they’re looking at a significant tax bill and they feel like they can’t pay it. Many of the individuals and businesses I’ve worked with haven’t filed for between six and 10 years.

Substitute for a Return

As you may already know, when you don’t file taxes, the IRS or the state will prepare a tax return for you based on information they have. Because the IRS or the state can’t make up deductions for you, usually their return usually reflects the worst case scenario. Interest and penalties are then assessed according to these SFR calculations, which the IRS will seek to collect.

One thing most taxpayers don’t know is that by not filing, you lose the ability to participate in any kind of tax amnesty program. Most people don’t know that there are programs available to help resolve tax issues, but you must be current with your tax filing to use them. Also, you can’t appeal anything unless a return has been prepared.

Statute of limitations

Filing your tax return starts the clock on several statutes of limitations with the IRS, most of which are in your favor. By not filing, you don’t trigger the clock on the following situations:

  • Discharging taxes in a bankruptcy
  • 10-year collection statute – the IRS can’t collect taxes more than 10 years old….as long as you filed the tax return.
  • Collecting a refund – you could lose your refund if your return is more than 3 years old

If you don’t file, we can't start the timer on these processes.

Taxpayer Advocate

There are IRS Taxpayer Advocates who can work with taxpayers after they’ve exhausted all the other administrative options with resolve. They  also work with taxpayers for whom the collection action is creating a substantial hardship. The Advocate office will assign you a case worker, but the first thing that person will want to see is the missing tax return(s).

 Bottom line: If you’ve got a big tax bill – even if you can’t afford it – it’s still better to file a return

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