Unfiled Tax Returns – Top Six Common Questions Answered

It's no surprise that there are several U.S. citizens who haven't filed their tax returns for years. Lots of people don't want to come forward and declare their unfiled taxes because they fear it'll bring in far more trouble to them. And many wonder how far back they need to go for their delinquent returns. People who don't have enough money to pay for the past tax dues wonder should they have to file the returns in any event or if it is better to wait until they can afford. Some are worried about whether they can be arrested and sent to prison for unfiled returns. People who plan to file bankruptcy or seeking out passport wonder whether they have to show filed tax returns or not. If you have similar questions like this about unfiled tax returns, read on the rest of the article to find the answers.

How far the Internal Revenue Service can go back to collect delinquent taxes?
Can you believe that in the event you don’t file a tax return, the IRS has forever to assess you taxes? That appears scary, but since the IRS has limited resources, the policy is that you should file for the past 6 years in order to become compliance. You need to know that every state has different statute of limitations and for certain cases, the IRS can look back even further. Here the expert assistance of a tax attorney is required.

Now, there is a complete turn-around. The IRS has become much better in finding US citizen’s income sources and actually, they can file Substitute Filed Return (SFR) on behalf of taxpayers. When you have SFRs against you, it is good to file return for those years, which may be well more than 6 years ago.

Do I have to file tax returns even if I am unable to pay the taxes I owe?
Without a question! It's not an offense to owe the IRS money, but it's a crime not to file your taxes.
And don’t wait until you can afford to pay the IRS to file your back tax forms. And the best time to have negotiation with the IRS is when you've got less amount of money to pay. This is called “Reasonable Collection Potential” (RCP) in IRS terms. Lower your RCP, the higher is going to be chance of getting favorable results.

What kind of penalties exists for unfiled returns?
The longer you wait to file your tax return the more money you will be charged in penalty charges as well as interest fees. This is how the IRS warns the non-filers:

“The failure-to-file penalty is generally more than the failure-to-pay penalty. So if you cannot pay all the taxes you owe, you should still file your tax return on time and pay as much as you can, then explore other payment options. The IRS will work with you.”

So not filing your tax return certainly will not make your situation any better. Always file and then you can make use of various tax solutions that help you to pay the owed taxes.

Would unfiled tax returns prevent me from getting a passport?
You won’t be denied a passport for having outstanding tax debts but the state government department may check with the IRS to see if you have unfiled taxes. The state government could refuse issuing a passport if your tax matters have been escalated. When the passport issuance is denied, you must pay the back taxes along with interest and penalties to have the denial removed.

Do I need to file my back tax returns when I'm filing bankruptcy?
Without a doubt! And also, did you know that you can file bankruptcy to discharge specific individual tax debts. But generally, it will only work if you filed for those years you expect the bankruptcy court to wipe out your IRS tax debts for. So even if the bankruptcy court didn’t ask you to file your old income tax returns, it is to your advantage to file any missing returns you haven’t.

How will I file the old tax returns when I don’t have all missing information?
The law only expects you to file missing returns that will be based upon the best of your knowledge. But you might ask “Where I can find the old income details?” Here, with the help of an IRS tax lawyer, you can find all the missing information. They will get the IRS W &I transcript and get all tax reporting forms like W -2’s and 1099s within couple of hours. The attorney will retrieve the old property tax bills from the city assessors. They will recreate profit and loss statements from your old bank statements.

Whatever your situation, do not ever ignore your tax return filing. Just file to protect yourself from getting nailed with big failure-to-file penalty.