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What can I do if I have unfiled tax returns?

I have 10 years of...

I have 10 years of unfiled tax returns. I've been self employed and haven't received a 1099 since 2001 and had no contact or received any mail from the IRS.

I missed one year and the next got hard to file and then I was flat out petrified in fear of jail, if I filed.

Please help me with any professional advice. I only have records back to 2007. I can't sleep over this issue and all I want to do is get into compliance.

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Answered in 23 minutes by:
2/27/2012
Tax.appeal.168
Tax.appeal.168, Tax Accountant
Category: Tax
Satisfied Customers: 3,862
Experience: 3+ decades of varied tax industry exp. Tax Biz owner
Verified

Hello, thank you for choosing JustAnswer.

Let me apologize in advance for the mini book that is to follow, but I feel that I need to provide you with this information so that you can have a clear understanding as to how to get your matter resolved, quickly and efficiently with minimal stress.

Let me first ease your mind and say that unless you owe some ridiculous amount of money, it is highly doubtful that you will be prosecuted or put in jail. As for filing you are obligated to file for each year that your income met the filing requirements. Okay, you don't have all of your records. Good news, the IRS can provide you with the last 10 years of your Wage and Income Transcripts at no charge to you. You will however need to call and request the transcripts. The number to call is 1-800-829-1040. Know that when you call, they will more than likely inquire about why you haven't filed for so many years. So, if you don't want to have to talk to them before filing the returns, hire a qualified tax professional, sign a Form 8821 authorizing them to get information on your account and have them request the tax transcripts for you. Once the transcripts are received, they will show all of your reported wage & income information for the years in question. The transcripts also show mortgage interest paid and other information.

Get the transcripts, have a qualified person prepare the returns and either mail them or walk them in to your nearest IRS office. You'll need to do the same for the state returns as well. You can call the Georgia Department of Revenue to get your state wage and income information for the tax years in question. They can be reached at 1-877-GADOR11 (1-877-423-6711).

As for your bank records, you should be able to request these from the bank. I think they will charge a fee for the copies. There may even be a way that you can get some of the years online. You can check with the bank regarding this matter.

Listed below is the link to the Form 8821/Instructions:
http://www.irs.gov/pub/irs-access/f8821_accessible.pdf

A few more things to know:

1) Any refund that you might have been due beyond the last 3 years is forfeited. You only have 3 years to claim a refund.;
2) If you owe and don't have the money to pay your tax liability, you can request to be put on an installment agreement payment plan, for both federal and the state if need be.
3) Interest and penalties continue to accrue on all unpaid balances;
4) When you don't file a return within a certain time period, the IRS files it for you. When this happens, the amount of the tax liability is greatly exaggerated due to the fact that you do not get all deductions that you might qualify for.
5) Most of the time, simply filing the returns greatly reduce your proposed tax liability.
6) More than likely, you will have a lot of penalties and interest, after all the returns have been filed, if you have a reasonable cause, you can request a penalty abatement to eliminate some of the penalties and interest that has accrued over the years. To request a penalty abatement, you submit Form 843.

Link to Form 843/instructions:

http://www.irs.gov/pub/irs-pdf/f843.pdf
http://www.irs.gov/pub/irs-pdf/i843.pdf

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Customer reply replied 5 years ago

Thank you so much for your answer! I'm borrowing all the money to pay for the last six years plus interest and penalties.

My taxable income for the last 6 years are:
2011 - 65K
2010 - 25K
2009 - 23K
2008 - 26K
2007 - 23K
2006 - have no idea. Can I use industry standards for this and will the IRS accept this?

Would you recommend me filing the last 6 years first and see if they request any additional years?

You are very welcome. Anything you pay will more than likely be applied to the earliest year that tax was due. Not to sound harsh, but it really doesn't work that way, whereas you can pick and choose what years you want to file and pay tax towards. To resolve your matter properly so that you won't have any worries, file all the tax returns for the years in question. Pay what you can on the tax liability, and for any unpaid balance, request to be put on an installment agreement plan. The same for the federal as well as the state.

For tax year 2006, as they have the income info already, I would not suggest using industry standards. I would suggest requesting the tax transcript so that you can report accurate information, because if you under report your income for that year, you will get a notice stating that you under reported your income, and then there will be additional penalties. Why even deal with the hassles?

I know that it may seem overwhelming and a bit scary, but resolving this matter will not be as hard or stressful as you may think it will be.

Something else that I want to mention, since you are self employed there are a number of deductions that you can take to offset some of your income. However, since these are late filings, unless you have documentation, I wouldn't bother trying to deduct the expense. When returns are filed late and have numerous deductions, the IRS looks at these returns closer mainly because of the late filing. If however you have documented proof of the expense, by all means, deduct it. Usually, as long as the expense is customary and reasonable for your industry, it will usually be acceptable. But again, your late filings put a dampener on that. To give you an idea of the expenses that you may be able to deduct, take a look at the Schedule C. SEE BELOW:

http://www.irs.gov/pub/irs-pdf/f1040sc.pdf

I just received some helpful info from one of my colleagues who is a Tax Attorney. He wrote the following:

-----------------------------------------------

I would point out that tax compliance for an installment agreement and the time period the IRS will require to be filed or file for you unless significant circumstances exist is only the current year and prior five. This would be 2006-2011 on April 17, 2012. Except possible loss carry forwards, there is not a good reason to file further back than that if you are going to owe unless the IRS has already filed for you. Even not filing 10 years will not typically be considered significant enough to require further filing.

In brief, from what he wrote, it sounds as if you can file from 2006-2011 unless they have filed for you. So yes, go ahead and file from 2006-2011 and see if they ask you to file the previous years.

Let me know if I have addressed your concerns regarding this matter.

Thank you.

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Customer reply replied 5 years ago

Thanks so much for your answers. Keep in mind that I have not had any reporting (1099 or w-2) since '01, so this is why I was thinking of using bank statements for '07-'11 and industry standards for '06 due to zero records or bank statement for this year.

Also wandering what your thoughts are for just filling the last 6 years for total compliance or will the IRS require more without any records or 1099's since I was self employed.

Do you feel this will be the best way to go? I have been paralyzed with fear to doing nothing due to not knowing where to start. Your professional advice is so much appreciated!

Again, you are welcome. In the case of no 1099s being filed, then all you have to go on are the bank statements. Also in this case, I suppose that using the industry standard for 2006 will suffice. As for being in compliance, I feel confident that my colleague is correct with the information provided for filing the last 6 years. File for the last six years and see what they say.

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Customer reply replied 5 years ago
Thank you so much for all this! Can you please recommend a tax service, CPA or tax attorney to handle this situation?

My Pleasure. Whereas it is against company policy for me to personally recommend someone to you, I will suggest that you contact the Georgia Board of Accountancy and ask if they can refer you to someone in your area.

Georgia Board of Accountancy
237 Coliseum Drive
Macon, GA 31217 - 3585
Phone: (478) – 207 – 2440
Fax: (487) – 314 – 9119

Thank you.

Tax.appeal.168
Tax.appeal.168, Tax Accountant
Category: Tax
Satisfied Customers: 3,862
Experience: 3+ decades of varied tax industry exp. Tax Biz owner
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