Filing IRS Back Tax Returns

January 8, 2024

IRS Back Tax Returns Help

The IRS is a powerful and intimidating agency, and you need the help of a qualified tax attorney to help resolve your issues. The federal government collects trillions of tax dollars annually, unpaid back taxes still surpass billions.  Due to increasingly complex tax laws, many taxpayers find themselves pressed by severe problems and owing money to the IRS for un-filed back tax returns.

Delinquent Taxpayer Consequences

Owing taxes is no joke. Throughout the country it threatens families, closes businesses and can lead to financial ruin.  Delinquent taxpayers will often face:

  • Fear of filing late tax returns, becoming burdened with an impossible IRS back tax debt
  • Loss of business
  • Inability to access bank account funds
  • Loss of income due to wage garnishment or Social Security levy
  • Asset seizures

Solutions to Resolving IRS Back Tax Liabilities

Ignoring the notices and phone calls is never a solution and will only worsen your situation. Once the collection process has begun, the government will not stop. Here at VTL, we have the experience and solutions to prevent the onslaught of revenue officers.

  • Filing back tax returns – to help bring you back into compliance
  • Notices of Back Taxes Due – responding quickly and accurately to avoid or release levies, liens and garnishments
  • Substitute for Return (SFR) – filing original returns to replace the SFR’s prepared by the IRS
  • Paying back taxes – negotiating with the IRS to obtain a satisfactory payment plan

Filing Past Returns = Compliance

When back tax returns are left un-filed and unpaid for years, the next step of action is to seek compliance by completing all of those past returns. As a registered federal agent, and tax law firm, we quickly and easily become compliant help you become again by completing your past returns for you. This is a huge value add on with our experience and mentorship.

Ignoring and neglecting these, various consequences ensue:

  • Increased penalties and fines
  • Interest compounded daily
  • Loss of personal property
  • Possible criminal actions

Consequences of Not Filing Returns

  • Negligence of filing back taxes may be viewed by the IRS as a criminal act.
  • Substitute for Return (SFR) can be filed for you by the IRS, allowing only the minimal deductions.
  • The statute of limitations does not begin until the tax returns are filed, giving the IRS 10 years from the date of filing to collect.
  • Interest and penalties will be added to the tax debt at an alarming rate.

Preparing to File Past Due Returns

In order to file your back returns, we will need to go through the following steps:

  1. Gather documentation for all years not filed.
    • W-4’s, 1099’s, earned interest, etc.
    • Expenses and deductions
    • Exemptions
  2. Go Through Consultation with One of Our Tax Experts
    • Complex IRS tax codes and laws
    • Missing deductions/filing errors
    • Negotiation for IRS tax relief
    • Advice on which years are required for compliance.
  3. File Past Returns
    • Filing back taxes is necessary, even if payment cannot be made
    • Amend returns to reduce the tax liability.

Paying Back Taxes

First and foremost, un-filed returns must be submitted.  If SFR’s have been filed, original tax returns must be prepared. If the full payment can’t be made, negotiations with the IRS begin.

Common Notices and Letters Received

If there has been no communication from the IRS regarding un-filed or delinquent taxes, it is a common myth the IRS has simply overlooked your case. The fact is, they have a system in place to address every liability, and you will be tracked down eventually with more penalties and consequences from delaying.

The Record-Keeping System

The Record-Keeping System for federal tax revenue is synced to Social Security and state networks. There is a huge swath of data being stored, so as you’d imagine, a government network set up to handle this data, is very inefficient and slow. Many years can pass before a taxpayer receives notification of tax liabilities, however with the IRS no stone is left unturned.

Types of IRS Notices and Letters You May Receive

The federal government sends these notices and letters as a warning to delinquent taxpayers before initiating aggressive collection action:

  • Changes to Tax Return, Balance Due
  • Reminder – Balance Due
  • Second Reminder – Balance Due
  • Final Notice – Balance Due
  • Installment Agreement Reminder Notice

Aggressive IRS collection action begins with these notices:

  • Notice of Intent to Levy Bank Accounts, Wages and/or Assets
  • Final Notice Before Levy on Social Security Benefits
  • Notice the Levy has Been Issued
  • Bank account funds have been frozen
  • Wages have been garnished
  • Personal assets will be seized (i.e. house, car, etc.)

Unfortunately, many taxpayers are unaware the IRS has located them until their bank or employer notifies them of the levy.

The High Cost of Ignoring These Notices and Delaying Action

Unfortunately, one of the most dangerous and destructive things you can do is to continue ignoring these letters and notices. Avoiding your tax problems will result in a much greater outstanding liability, and more penalties and interest charges added on. Some of the other possible consequences include:

File Yourself: Avoid a Substitute for Return

Neglecting to file tax returns opens the door for the IRS to exercise a powerful action against a taxpayer. The IRS has the authority to prepare and file a Substitute for Return (SFR) on your behalf. If the IRS must file an SFR for a delinquent taxpayer, and to no surprise it will be prepared in the best interest of the government. Taxpayers are given only one personal exemption, zero dependents, and the standard deductions. To determine taxable wages, the IRS will draw from:

The SFR is an estimate of taxes owed and is often greater than the actual tax liability. Once they file the tax assessment on the SFR, they can legally begin serious collection action. It is now more important than ever to call a qualified expert to help you navigate their obstacles and hurdles.

Proposed Assessments

The Notice of Proposed Assessment letter informs a non-filing taxpayer of the estimated tax liability contained in the SFR. This notice states:

  • You have 30 days to respond to the IRS to avoid collection action.
  • The IRS has no record of receiving your tax return.
  • You owe the proposed tax amount with penalties and interest based on income reported.

You will be instructed to submit:

  1. Your signed, past due tax return (Form 1040),
  2. The signed Consent to Assessment and Collection form, or
  3. A personal statement explaining why you do not need to file, etc.

At this point, it is imperative you do not act hastily out of confusion or intimidation. Prior to signing or agreeing to anything, consult with a tax attorney who can advise you of your options. You may need assistance filing past due returns to replace the SFR‘s, disputing the amount of the back tax debt, proving you are not liable for the tax debts, or qualifying for a tax debt relief program.

Negative Effects of a Substitute for Return (SFR)

Even if you are unable to pay your taxes, it is always best to submit your return to prevent the IRS from filing a Substitute for Return for you. The filing of an SFR has negative effects for the taxpayer:

  • You are given one personal exemption, zero dependents and standard deductions.
  • The income reported may be incorrect.
  • You may have a much higher tax bill than necessary.
  • The Statue of Limitations does not apply to the SFR, permitting the IRS to pursue collection indefinitely.
  • An unsigned SFR, not replaced by an original return, does not qualify the tax debt for discharge in bankruptcy.
  • Tax refunds can be permanently lost.

If you have had a SFR filed on your behalf, and want to see how much you can save by having your old returns filed, please give us a call today, and we can see how we can help you!

How to Pay Your Back Taxes

While the IRS remains focused on collecting as much of the debt as possible, they are becoming increasingly more cooperative due to the financial crash of 2008. In the current economy, they are willing to offer delinquent taxpayers various options for getting out of their problems.

It is very helpful to consult with a tax lawyer who is skilled in negotiating with tax problems like yours. Frequently, a reduced settlement amount can be reached and/or penalties and fines can be forgiven. An experienced tax attorney is aware of all IRS programs for which you may qualify.

Attempting to deal with the government without representation can subject a taxpayer to paying more than necessary, or accepting an unreasonable payment plan.

Options for Paying

The governement offers several opportunities to settle tax liabilities. To determine if a taxpayer will qualify for tax debt relief, the main consideration is their financial condition. A qualified federal tax agent (like one of ours) is your best advocate for guiding you in accepting the right settlement, and for protecting you from disclosing unnecessary information that could be detrimental to your case. Programs for paying back taxes fall into two categories:

  1. You can enter into an agreement to settle your back tax debt for less than the amount owed, or
  2. If the tax liability cannot be reduced, you can apply for special consideration regarding the full amount due.

Settling For Less Than You Owe

Offer in Compromise (OIC)The OIC is the most sought-after settlement method by taxpayers, but it is also the most difficult for which to qualify. OIC gives the IRS authorization to reduce outstanding tax liabilities, including interest and penalties, for less than the full tax due. The burden is on the taxpayer to convince the IRS that the amount demanded could never be collected from you and would force you into financial hardship.
Penalty AbatementTaxpayers may request the elimination or reduction of IRS imposed penalties. Key to a favorable outcome is the taxpayer’s ability to convince the IRS of a sound reasonable cause for failure to follow tax laws. A few examples of “reasonable cause” are:Death or serious illnessDestruction of tax records by any casualtyUnavoidable absence of the taxpayerInability to determine tax amount for reasons beyond taxpayer control
Lack of fundsAcceptable only if the taxpayer can support solid proof of prudent financial management
Partial Payment Installment Agreement (PPIA)A taxpayer may qualify for a reduction of the total tax liability initially owed the IRS. The taxpayer must be able to provide financial proof they cannot make the minimum monthly payment required by the IRS. A PPIA agreement with the IRS can then be negotiated to pay the reduced amount over a period of time.

Settling for the Full Amount You Owe

Guaranteed Installment Agreement (GIA)If your assessed tax liability is $10,000 or less, you may qualify for a GIA without IRS financial analysis or IRS manager approval. The taxpayer must be able to pay the tax debt in full within three years, and must not have had an IRS Installment Agreement during the previous five years.
Streamlined Installment Agreement (SIA)If your assessed tax liability does not exceed $25,000, you may be able to negotiate for an SIA, and bypass the IRS financial analysis and manager approval. The taxpayer must be able to fully pay the tax debt over the next 60 months.
IRS Installment Agreement (IA)Requests for Guaranteed or Streamlined Installment Agreements that do not meet IRS qualifications will be placed under intense financial scrutiny. The IRS will require all information regarding your assets, liabilities, income and expenses. The approximate time limit for an IA is 5 years. If the assessed tax liability cannot be paid within 5 years, another tax debt relief plan should be considered. IRS negotiations at this level are better handled by an experienced tax attorney to represent the taxpayer’s best interest. NOTE: Before any IRS installment agreement can be considered, the tax payer (a) must have filed all tax returns due, and (b) must file and pay all tax returns during the agreement.

Currently Not Collectible (CNC) Status

The IRS may determine a tax liability to be Currently Not-Collectible and defer collection action due to “hardship”. You will continue to owe the back taxes, and penalties and interest will still accrue. The IRS will periodically review your income and expenses watching for financial improvement, but further collection activity will be suspended. A few of the reasons a case may be marked as CNC include:

  • Collection of back taxes would cause undue hardship for the taxpayer, leaving no room to meet necessary living costs
  • Death of a taxpayer with minimal assets
  • Special action, i.e. military assignment in a combat zone, or incarceration
  • Catastrophic illness, personal or family
  • Bankruptcy or suspension of business with no remaining assets

Frequently Asked Questions (FAQ)

I can’t pay my taxes. Why file?

The government views the failure to file a tax return as a criminal act which begins as a misdemeanor and can elevate to a felony. However, the failure to pay is only a civil manner. Always file a return even if you cannot pay. You cannot qualify for any tax relief help if you have not filed your tax return(s).

Is it possible to get an extension and not have to pay interest and fines?

Not usually. Your filing date may be extended for up to for six months, but they still require full payment by April 15th to avoid penalties and interest. Occasionally, penalties may stop accruing, but compounding interest continues.

I didn’t get my refund. Why not?

Your refund may have been applied to a delinquent tax debt from previous back taxes owed. It can also be used to pay various delinquent government loans, overdue child support, or Social Security overpayment. Consult with a tax attorney to verify application.

Will the IRS actually come to my house?

Yes. If you have not responded to the notices or phone calls, your case will be assigned to a local revenue officer to locate you. However, an agent cannot enter your home without your permission unless they have a court order.

Do they have the right to take my home?

Yes. They have the authority to seize and sell your home, car, etc. to pay delinquent tax debts from returns un-filed and balances still owed.

Will I get any warning before they freeze my bank accounts or seizes my assets?

Yes. The IRS must notify the taxpayer prior to levy or seizure. Notices must be sent certified mail to your last known address. However, many delinquent taxpayers move frequently and do not receive these notices.

Can you be sent to jail for not filing tax returns?

It is possible, but not likely. The federal government considers the act of not filing returns as being non-compliant with tax laws. Tax fraud or evasion charges are usually brought against individuals in organized crime or public figures.

Is the IRS ever willing to deal with you?

Yes. Especially now in the current economy. There may programs and debt relief options available for collecting on money owed, and cleaning up the problems.

Does a taxpayer have any rights at all?

Absolutely. The Declaration of Taxpayer Rights declares these rights for:

  • Protection of Your Rights
  • Privacy and Confidentiality
  • Representation by a Legal Counsel, CPA, or Federally Enrolled Agent
  • Payment of Only the Correct Amount
  • Help with Unresolved Problems
  • Appeals and Judicial Review
  • Relief from Certain Penalties and Interest
What’s the difference between a levy and a lien?

A levy is the legal seizure of your property to satisfy a tax liability. An lien is used as security for a debt and will prevent you from selling or refinancing your home, cars or other property.

I only owe payroll taxes. Can the IRS go after my personal assets?

Yes. The IRS can assess the Trust Fund Recovery Penalty even if the business is defunct. The penalty for willful failure to pay withheld income and employment taxes can be assessed against the individual(s) responsible for collecting and paying these taxes.

Will ignoring the IRS notices make them give up?

Rarely does the federal government ever “give up”. Ignoring them will lead to more forceful collection action such as a bank account levy, wage garnishment, or seizure of property. Responding to their letters and notices as soon as possible will avoid a hostile event or environment.

Can I settle my tax debt for less?

Possibly. You may be able to apply for an Offer in Compromise (OIC), commonly touted by unethical tax relief firms as the “pennies on the dollar” program. Qualifying for an OIC is complex and is best handle by a experienced tax lawyer, who may also be able to negotiate the waiving of different penalties, fines and interest charges.

What are Installment Agreements?

Taxpayers can enter into an Installment Agreement allowing monthly payments over a set period of time to fully repay the tax debt. The government offers different types of agreements to best accommodate the taxpayer’s financial situation.

How can I get the IRS to classify my tax debt as non-collectible?

After a review, they will determine your financial circumstances, and if you qualify for a Currently Not Collectible status due to:

  • Collection for back taxes would cause undue “hardship” for the taxpayer
  • Special action, i.e. military assignment, or incarceration
  • Catastrophic illness, personal or family
  • Bankruptcy or suspension of business with no remaining assets
Can my tax debt be included in bankruptcy?

Yes and no. Payroll and federal excise taxes cannot be included. Personal income taxes can be listed, but only if the complex criteria of the Bankruptcy Code are met. Consult an experienced bankruptcy lawyer for guidance.

Is my accountant forced to disclose my information?

Yes. Only information disclosed to your lawyer is protected. That is why it is best to have a qualified tax attorney represent you in negotiations.

What does “innocent spouse” mean?

If a taxpayer qualifies for “Innocent Spouse” relief, they can avoid the joint liability for any taxes, interest and penalties related to the spouse (or former spouse).

What is the statute of limitations on IRS collections?

The IRS has only 10 years to collect delinquent taxes. Taxpayers erroneously believe if they “wait out” this period, they are home free. This is usually not the case. Even though it may take many years, the government has the ability to locate you through multiple, computer-linked sources. Also, the 10-year statute of limitations can be extended by: