Filing Back Taxes – What You Need To Know
If you have unfiled tax returns, and you know you will owe the IRS back taxes, then it is imperative you develop a plan for how to file your back tax returns as soon as possible.  Oftentimes taxpayers recognize they are going to owe back taxes, and simply do not have the money to pay those income taxes, so they procrastinate the filing of the IRS tax returns. This tax problem is much more common than you may suspect.  However, it is not a wise course of action as there are serious consequences to not filing back taxes timely.  All past due tax filers are encouraged to take advantage of the free consultation offered by our affiliated IRS tax firm. 

Consequences/Penalties/Interest
The IRS takes a harsh view of unfiled income tax returns, and may see this as a pattern of behavior that can even be construed as criminal. The IRS will not work with a delinquent taxpayer in dire financial circumstances until that taxpayer is in compliance by filing all back IRS tax returns.

Having prior unfiled IRS tax returns can have a far reaching impact of which most past due taxpayers are not even aware.  Having unfiled tax returns, and owing back taxes, can prohibit a taxpayer from securing a car loan, obtaining a student loan, buying a house, refinancing a home and getting credit from most lenders and credit card companies.  In addition to the financial constraints just covered, the IRS may proceed with its collection actions such as an IRS levy, lien, or wage garnishment.

The IRS also has the authority to assess penalties for unfiled tax returns.  If you owe back taxes due to not filing your tax returns on time, the IRS will assess a penalty known as the “failure to file penalty.”  This penalty is typically 5% for each month in which your taxes are unpaid, with a maximum of 25%.  If a taxpayer became past due on the filing of IRS tax returns, and it was primarily because they felt they did not have the funds to pay the back taxes owed, their financial situation will rapidly worsen as the tax debt grows to an unmanageable level due to IRS penalties imposed.  The best course of action is to immediately address the filing of back taxes.

Substitute for Return (SFR)
If you have past unfiled tax returns, the IRS may prepare one for you.  Federal law actually permits the IRS to prepare what is called a “Substitute For Return” or an SFR.  This return is prepared by the IRS based on their best guess of what they estimate your income was for any given tax year. This substitute tax return will use only the standardized exemptions, deductions and credits.  It will not include any expenses you may have incurred which are eligible for deduction and help to reduce your tax liability.  Once this SFR is filed, the interest and penalties begin to accumulate and your tax problem quickly becomes unmanageable.  The IRS does repeatedly notify you about your past unfiled tax returns before they complete the Substitute for Return on your behalf.  Knowing this back tax filing problem will not go away, and only has the potential to get worse, many delinquent taxpayers seek expert help filing back taxes quickly.

If you do not know how to properly file back taxes, it is wise to seek out help filing back taxes with a qualified IRS tax professional.  An IRS tax professional can help with locating missing records, filing your previous back taxes so you are up to date with the IRS, and then begin working directly with the IRS on your behalf to help reduce the penalties and interest.  Our affiliated IRS tax advisors have the knowledge and industry experience to get you back on track quickly with your unfiled IRS tax returns.