Several taxpayers have not filed taxes for nearly a decade. In fact, some have never filed their taxes. Many wonder what the statute of limitations will be for unfiled tax returns. Some people aren’t in a position to pay the IRS, so they wonder if it’s better to file only after they can pay, or should they file anyway. Some have questions about whether officials will ask for updated tax returns when they file for bankruptcy or apply for a passport. Some worry that they will be arrested for failing to file statements.
This article will provide answers to frequently asked questions about unfiled tax returns.
Suppose I haven’t filed tax returns for years. Do I need to file all the missing returns?
The IRS has no time limit to recover taxes if you never filed a tax return; the statute of limitations never runs out. But they only have limited resources, so the policy is that taxpayers must file returns for the last 6 years to be tax-compliant. In certain cases, you may need to speak with a tax attorney to determine if you need to go back even further.
Much has changed over the past 10 years and now the IRS is getting much better at identifying people’s sources of income and preparing a substitute filing return (SFR) for taxpayers. So, if SFRs are filed against you, then you will have no choice but to file returns for all the years that are mentioned in the SFRs.
What if I owe back taxes but can’t pay? Do I really have to file anyway?
Absolutely! It’s okay to owe back taxes to the IRS, but failing to file tax returns will be considered a crime.
So even when you can’t pay anything to the IRS, it’s still in your best interest to file. And the perfect time to negotiate with the Internal Revenue Service is when you have the least money to pay. In IRS terms, this is called “reasonable collection potential” (RCP). Deal with the IRS when your RCP is lower.
How big is the IRS? penalty for unfiled tax returns?
This is exactly what the IRS says:
“The penalty for not filing is usually higher than the penalty for not paying. So if you can’t pay all the taxes you owe, you should still file your taxes on time and pay as much as you can, then explore other payment options. The IRS will work with you.”
So never try to avoid filing returns just because you can’t pay the tax money due. Single file. You can do something to pay off your tax debts later.
Do I have to file all back taxes before I file for personal bankruptcy?
Yes! you have to. Also by filing for bankruptcy, it is possible to discharge most of your owed taxes. But to accomplish this, you must show your filed taxes to the bankruptcy court for all the years in which you want to get discharge of tax debts. For many people, not filing taxes became a major hurdle to getting discharged from bankruptcy. So file all the missing returns before you file for personal bankruptcy.
May l get the passport if I owe the IRS back taxes?
In general, passport issuance will not be denied simply because you owe the IRS money; however, the state government has the ability to deny or revoke your passport for certain tax violations. When passport issuance is denied, you must pay back taxes along with penalties and interest in order for the denial to be lifted.
How can I file old returns if I don’t have all the information?
The law wants people to make past statements to the best of their knowledge. But you may ask how to get the old tax records and financial details. Here, with the help of an IRS tax attorney, you can get all the missing information. They’ll quickly get all your old tax forms, like 1099s and W-2s, by pulling the W&I transcript from the Internal Revenue Service. For old property bills, the IRS attorney will contact the city assessor and gather information from them. For business owners, these tax professionals will create profit and loss statements from your previous bank statements.