It is estimated that 7 million taxpayers fail to file their tax returns each year, which is approximately 5% of all filers. The Internal Revenue Service released results of a study that indicated that the federal government loses $28 billion annually. Unfortunately (for the IRS, perhaps not for the non-filers), the IRS has never had the resources to adequately track and keep record of these non-filings.
If you have failed to file tax returns for some extended period of time, once you are ready to “catch-up,” how many years of returns will you be required to file? How far back will the IRS enforce the tax laws in regard to your delinquent non-filings? Five? Ten? Fifteen years? What if the non-filings were willful or fraudulent? What if a person hasn’t filed a tax return in six years? Will you have the ability to gather and even find all of the information necessary to file these returns? To what extent will the IRS enforce delinquency procedures?
The IRS, as it usually does, has issued a statement regarding delinquent returns and the enforcement thereof. Policy Statement 5-133 states that taxpayers “failing to file tax returns due will be requested to prepare and file all such returns except in instances where there is an indication that the taxpayer’s failure to file the required return or returns was willful or if there is any other indication of fraud. All delinquent returns submitted by a taxpayer, whether upon his/her own initiative or at the request of an IRS representative, will be accepted. However, if indications of willfulness or fraud exist, the delinquent taxpayer must follow special procedures for the handling of such returns.”
In filing delinquent returns, The IRS has forms for to aid you in filing. Tax forms that employers, banks, and businesses give or send to you are normally also filed with the IRS, which may keep these records up to ten years. You can find out the information contained in your records by completing and sending Form 4506-T Request for Transcript of Tax Return. Thus, you can use the IRS itself to obtain much of the information necessary to prepare and process your delinquent returns. This information includes withheld income amounts and whether or not you filed a return (in case you’re not actually sure).
There are five different types of transcripts which the IRS may provide:
- Verification of Non-Filing – Mainly used to verify whether the IRS has your return and is available after June 15th for the current year.
- Return Transcript – A copy of the most recent return filed with the IRS which is available for 3 years from the original due date.
- Account Transcript – Indicates whether there is a balance due, penalties, interest, payments and processing date, initial tax due, and any withholdings.
- Record of Account – Combines the information in the Return Transcript and the Account Transcript, but is only available up to three years from the return due date.
- Wage and Income Transcript – These are generally available for 10 years. It includes Forms W-2, 1098, 1099, and 5498, the latter for IRA contributions. Wage and Income Transcripts should show any federal withholdings, but will not show state of New York withholdings. Records of state withholdings are not kept by federal or state entities, so you must get replacement W-2s from employers. If this is not possible, then you may be able to estimate state withholdings based upon federal withholdings.
When the IRS determines that required returns have not been filed, it will enforce compliance for prior years by reference to factors ensuring compliance and the evenhanded administration of IRS resources including staffing. The IRS will consider factors that include, but are not limited to: prior history of noncompliance, existence of income from illegal sources, effect upon voluntary compliance, anticipated revenue, and collectibility, in relation to the time and effort required to determine tax due. Consideration will also be given to any special circumstances existing in the case of an individual taxpayer, class of taxpayer, or those which are peculiar to the class of tax involved. Thus, the degree of enforcement by the IRS seems to be also very much related to its manpower and staffing resources.
Normally, application of the above criteria will result in enforcement of delinquency procedures for not more than six (6) years. The IRS will not undertake enforcement beyond this without prior managerial approval. Also, if delinquency procedures are not to be enforced for the full six year period of delinquency, prior managerial approval must be secured. Thus, if you have six years of delinquent tax returns, delinquency procedures will be enforced for the entire six year period. If you were delinquent for seven years, then the IRS would only enforce delinquency procedures for six years. To do so for seven years would require prior managerial approval. The result would be the same if you were ten or fifteen years delinquent in filing your tax returns.
For questions or concerns about the unfiled tax returns, you should contact experienced and reliable tax attorneys CPAs at the Thorgood Law Firm www.thorgoodlaww.com . For a FREE consultation call 212-490-0704.
