Dealing With Back Tax Returns

Help Back Taxes

There are all sorts of reasons that people don’t file tax returns and have back tax returns. Some people forget, others think because they owe nothing, they don’t need to file. Others are too busy or intimidated or don’t have the money to pay someone, and there are a few who just don’t want to pay. From the perspective of the IRS and most state tax departments, your reason for not filing really doesn’t  matter and they think of you under a simple label: non-filer. In their world that means you probably are not a good person.

Make no mistake here, if you have unfiled back tax returns, whether you owe money or not, the IRS and State you live in will find you, and they will penalize you. It’s those penalties and interest that can really add up. And the longer you wait or the more years you fail to file, the bigger the numbers get. We had a case where the original yearly amount owed was about $3,000 but after a couple years it was at $30,000 when you add together the tax owed plus interest and penalties. Wait long enough and the IRS will garnish wages, place liens on your bank accounts and property and even charge you with a crime for back tax returns.

The IRS estimates that around 10 million taxpayers have not filed their federal returns. That number is what gets their knickers in a twist. If, on average, each one of those people owed just $100, then you’re talking about $1 billion of uncollected taxes, which is a decent amount of money in anyone’s estimation. This is why tax people get so aggressive. Their job is simple: collect taxes. They have bosses and numbers to meet and they have the full weight of the government behind them, so while it may seem like using a bazooka to kill a mosquito, it really doesn’t matter to them.

The Process

So, you’ve decided it’s time to settle your back tax returns as you don’t want to be one of those metaphorical bugs on the windshield. The first thing you need to do is figure out the last time you filed a return. Now you know how many years you have unfiled back tax returns. Next, you need to go on an expedition to collect all the documents you’ll need to file the missing returns. You’ll need to dig through your own records, collect receipts, bank statements, mortgage interest statements and so on. You can visit the IRS and request your previous W-2s, 1099s and any other tax files that were sent in the years you didn’t file. Believe it or not, they’ll be happy to help you in this way as it’s in their interest, as well as yours, to get your back tax returns squared away.

Once you have the data you need, it’s time to sit down and fill out your back tax returns. If you have trouble, or the overall job is simply too much, you can hire an attorney who understands the tax laws to do this for you. Once the papers are ready and the IRS determines how much they think you owe, a tax attorney can also help on that end. He or she can negotiate on your behalf to either reduce the amount owed, if possible, or help to set up a reasonable payment schedule with the IRS and/or State. Again, once you show them that you seriously want to get your tax house in order, they are usually quite willing to work with you to settle and clear up your back tax returns. After all, what they really want is for everyone to pay their taxes on time and in full.

The bottom line on unfiled back taxes is that it’s not necessarily all doom and gloom. In some cases, you may owe much less than you think, and in some other cases, they may owe you money, believe it or not. We recently had a case where an individual failed to file for a three year period. During years one and three, the taxpayer was owed a refund and during year two, they owed money. The refunds helped lower the penalties and interest so ultimately, the taxpayer was less impacted that you would have thought even though they had to file three years of back tax returns. Your best bet is to always pay your taxes on time and in full, but with some strategic help from a tax attorney, chances are usually good that things can be managed and you can move ahead.

By: Timothy S. Hart