How to File Back Tax Returns

How to File Back Tax Returns

If there’s anything as bad (or worse) than paying taxes, it might be filing tax returns. Not only are these some of the most confusing forms to complete, but when you’re done, you sometimes find out that you have to cut a check to Uncle Sam. And when Uncle Sam writes you a check, it’s usually money that’s already yours. So it’s understandable if you get behind on filing your tax returns.

Then there are situations where the filing deadline snuck up on you or you incorrectly thought you weren’t required to file a tax return. Whatever your reason is for having one or more unfiled tax returns, the sooner you file these missing returns, the better. The longer you wait, the more likely you’ll have to face the negative consequences, such as increasing penalties, interest, or even prison. The following is an overview of how you can catch up on back tax returns, but before we get to that, let’s first go over why it’s important to file any unfiled tax returns.

Key Takeaways 

• Not filing a required tax return can result in major problems, including mounting penalties, interest, and even criminal charges.
• Missing tax returns can also result in lost benefits, such as refunds, credits, future Social Security payments, and access to certain IRS programs.
• How far back you need to go to file missing tax returns depends on your tax situation, but you probably won’t need to go back further than six years.
• The process for filing back tax returns will be similar to filing most other tax returns, but it’s usually a good idea to first talk to a tax resolution professional to make sure you’re filing the right returns and don’t make any mistakes that could result in more problems. 

What Is Filing Back Tax Returns Important? 

There are many reasons why filing back tax returns is important. These range from saving money to avoiding a criminal conviction. 

Reducing Penalties and Interest 

If you end up owing taxes to the IRS, filing past returns can reduce the penalties and interest you’d have to pay, such as the failure-to-file penalty. 

Claiming Tax Refunds or Credits 

If you want to claim a tax refund or a tax credit for a given tax year, you have to file a tax return. This is true even if you don’t owe any taxes for that year. If you wait too long to file (three years, usually), then you could risk losing your legal right to that refund or credit. 

Avoiding a Substitute for Return 

A substitute for return (SFR) is where the IRS prepares and files a tax return on your behalf. The IRS doesn’t do this to be nice. Instead, it’s to assess a tax against you using incomplete financial information that’s almost guaranteed to result in a tax bill that’s larger than it should be. If you don’t pay this often overinflated bill, it could result in tax collection actions, such as a lien or wage levy. 

Protecting Social Security Benefits 

If you’re self-employed, filing tax returns protects your Social Security benefits. When and if you’re to receive Social Security retirement or disability benefits, the Social Security Administration reviews the self-employment taxes you’ve paid into the program. The less you pay into the system, the fewer benefits you can expect to receive. 

Obtaining Credit 

You’ll likely need recent tax returns when applying for credit, especially a large loan. Whether you’re looking to finance your education, a house, a car, or a new business, most banks will ask you to provide tax returns from the past few years. Not doing so can make you ineligible for many of these loans. At a minimum, it will likely increase the amount of time and money needed to obtain a loan.

Accessing IRS Tax Programs 

Certain IRS taxpayer programs, like an offer in compromise (OIC) or installment agreement, require you to be up-to-date with your tax returns. If you’re not, you won’t be eligible to apply. 

Taking Advantage of the Statutes of Limitations 

The IRS has certain time limits on how long it can take to assess a tax against you (Assessment Statute Expiration Date, or ASED) or collect a tax from you (Collection Statute Expiration Date, or CSED). If one of these deadlines expires for a particular tax, then the IRS is legally barred from trying to assess or collect that tax from you. But neither the ASED nor the CSED clocks “begin ticking” unless file the applicable tax return. 

Avoiding Criminal Charges 

Being compliant with your federal tax return obligations means you’re less likely to get arrested. Knowing you have to file a tax return and choosing not to may result in criminal charges for criminal tax evasion. 

How Far Back Do I Need to File a Past Tax Return? 

Ideally, you’ll file all back tax returns, no matter how far back they go. Realistically, this may not be practical or even necessary. It depends on your specific financial situation and how many missed tax returns you have.

Haven’t Filed the Past 3 Years’ Worth of Returns 

If your unfiled returns go back three years or less, your biggest reason to get compliant (outside of avoiding additional penalties and interest) is to not lose out on any tax credits or refunds the IRS owes you. You also want to avoid an SFR, which is a possibility even if you’re only a few years behind on your tax returns. 

Haven’t Filed the Past 6 Years’ Worth of Returns 

According to IRS Policy Statement 5-133, Delinquent Returns – Enforcement of Filing Requirements, the IRS considers you to be in good standing with your tax return obligations as long as you’ve filed the last six years’ worth of tax returns [Kari: link here to the six years compliance article/blog post I wrote earlier this month for W Tax].

This is a general rule, which means that in some situations, the IRS may require you to file missing tax returns that go back further than six years. The IRS will often require this if you have a large amount in unpaid back taxes, your unfiled returns relate to business taxes, or a revenue officer is handling your tax case. 

Filing Tax Returns That Are More Than 10 Years Old 

The IRS doesn’t usually go after taxes that involve tax returns more than a decade old. However, the IRS might make an exception in cases of fraud or a significant tax balance. This is because there are no statutes of limitations (CSED or ASED) that apply to unpaid taxes when a required tax return was never filed. 

Consequences of Not Filing Past Tax Returns 

If you have unfiled tax returns, you can expect one or more of the following:

• Failure-to-file penalty: For most individual and business taxpayers, this is 5% of the tax due for each month the tax return is late. This penalty is capped at 25%, though. However, interest can continue to accrue on not just unpaid taxes, but tax penalties.
• Substitute for return: As mentioned earlier, this will almost always result in a tax balance that’s larger than what you legally owe. Unfortunately, the filing of an SFR doesn’t start either the ASED or CSED statutes of limitations.
• Collection actions: If the IRS files an SFR and you don’t respond to it, you can expect IRS enforcement and collection actions against you.
• Criminal charges: Most taxpayers who don’t file required tax returns usually aren’t charged with criminal tax evasion. Despite this, the possibility for arrest and prison exists as long as unfiled tax returns exist. 

Steps for Filing Back Tax Returns 

If you’re like most taxpayers, then the process for filing a past-due tax return is about the same as a regular tax return. However, depending on your reasons for not filing these returns, how far back they go, and how much money they could show you owe the IRS, the first thing you should do is talk to a tax professional. They can confirm which missing tax returns you must file and what you can expect after you do.

For example, if you prepare a missing tax return and it shows you have a tax bill that’s too big for you to pay immediately, your tax professional can help you develop a plan for addressing this tax bill. Here are the basic steps to filing a back tax return. 

Step 1 

Confirm which years you need to file a tax return. You’ll probably focus on the last six years, but may need to go back further in some situations. 

Step 2 

Gather all the documents, statements, and papers you’ll need to fill out the tax return. This may include bank statements, invoices, 1099s, and W-2s. If you don’t have these documents, you can contact the entity that created them to request another copy, review your IRS transcript, and/or create them yourself if you never received them. 

Step 3 

Prepare your returns. If you choose to do it yourself, try to use software to reduce the chance of errors. 

Step 4 

File your returns. For older years, you may have to mail them in, but recent years can probably be filed electronically. 

Step 6 (If Necessary) 

If your past returns indicate you owe taxes, penalties, and interest you can’t afford to immediately pay at the time of filing, you’ll want to consult with a tax pro about other arrangements, such as an OIC, installment agreement, payment plan, or requesting CNC status.

Getting Help From the W Tax Group With Back Taxes 

Because of the possibility of significant penalties and interest, along with the challenge of deciding which years require a tax return, it’s a good idea to think about getting help from a tax professional. If you think you might be in legal trouble, you’ll want to make sure you talk to a tax attorney, too. Luckily, the W Tax Group consists of a variety of tax resolution professionals (including lawyers) who can help with almost any IRS tax problem. 

To learn more about what we can do for you and help you get back on track with your tax returns, use our online contact form to schedule a free consultation.

Back Taxes FAQs 

Can I still get a tax refund from an old tax return? 

Yes, but not if it’s too old. The general rule is that if you’re entitled to a tax credit or refund for a given tax year, you must file that tax year’s return within three years of its due date. 

What happens if I’m missing records needed for back tax returns? 

There are several things you can do. First, contact the employers, companies, banks, etc. and ask if they can resend the missing tax documents. Second, you can review your IRS tax transcripts to identify income associated with you that’s been reported to the IRS. Third, you can try to recreate some of the records by examining past financial statements. Depending on your situation, there may be other things you can try, but you’ll want to talk to a tax professional to explore these options. 

What do I do if I can’t afford to pay my back taxes? 

The IRS has several options available to help you pay your taxes over time. If an extra few months or years still isn’t enough time, there may be other possibilities, like an offer in compromise and Currently Not Collectible status. These can reduce your tax debt or pause IRS collection efforts. 

Will filing back tax returns trigger an audit? 

Possibly, as filing an old return could raise some red flags with the IRS. However, as long as your past taxes are filed accurately, then your audit risk is relatively low. This is especially true if you have a relatively simple tax return with no significant unreported income. That being said, don’t let the fear of an audit scare you from filing required back taxes. The potential civil and criminal penalties you could face for intentionally not filing required tax returns could make an audit seem like a small problem.

Lead Tax Attorney at The W Tax Group

Stephen A Weisberg

Sources:
https://www.irs.gov/payments/failure-to-file-penalty
https://www.irs.gov/businesses/small-businesses-self-employed/filing-past-due-tax-returns
https://www.wtaxattorney.com/tax-problems/unfiled-tax-return/file-back-tax/
https://www.hrblock.com/tax-center/filing/file-taxes-from-previous-years/?srsltid=AfmBOoodVLozPxEoUvDcSf7dl5i-PNgSCRTbms81qJo3OHHB4zbVcSOY
https://turbotax.intuit.com/tax-tips/irs-tax-return/how-do-i-file-back-tax-returns/L535BxMms
https://www.wtaxattorney.com/tax-problems/unfiled-tax-return/ten-years-unfiled/
https://www.hrblock.com/tax-center/irs/audits-and-tax-notices/years-since-filed-tax-return-start-filing/
https://www.nycaccountingconsulting.com/essentials-of-back-tax-filing/