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10 important facts to know about resolving back tax returns

Jim Buttonow, CPA, CITP

SVP Post-Filing Tax Services

Published on: June 07, 2023

When you need to address back tax returns, it’s important to understand how the IRS works. Here are 10 key points that will help you as you resolve your past-due returns and get back in good standing with the IRS. 

  1. Individual taxpayers usually need to file only the last 6 years of tax returns to be considered filing compliant. The IRS policy to be filing compliant generally means filing the most current and past 6 years of returns.
  2. The IRS doesn’t pay old refunds. If you file a tax return more than three years after the return due date, you generally can't get a refund of overpaid taxes.
  3. Taxpayers need to do their due diligence to file accurate back returns. It’s essential to prepare an accurate return that matches IRS records. When preparing your back tax return, you should trace your income history and request your wage and income transcripts and account transcripts from the IRS. These transcripts will provide income information and other activity, such as withholding, estimated tax payments, and other information needed to file an accurate return. If the tax returns you file do not match the information on the transcripts, the IRS may question the accuracy of your return.
  4. The IRS will screen back returns for accuracy. At a minimum, the IRS will review your Forms W-2, 1099, and other information to see if you accurately reported them on your return. The IRS may select your return for audit, if the IRS thinks it has material inaccuracies.
  5. The IRS may hold your refund. The IRS may freeze your refund if you have back tax returns. Once you get back in filing compliance, the IRS will release your refund.
  6. The failure to file and failure to pay penalties apply if you file and owe. If you file late, you could face a stiff penalty for failing to file (up to 25% of the taxes you owe). You may also incur a failure to pay penalty (up to 25% of the taxes you owe) on the balance. Together, the failure to pay and failure to file penalties can reach a maximum of 47.5%.
  7. The IRS can file a return for you and start collecting on the tax balance. This may happen after sending you a series of letters asking you to voluntarily file. A notice will provide you with the opportunity to file a petition in Tax Court if you disagree with the proposed assessment. If you fail to file a Tax Court petition, or otherwise resolve the issue with the IRS, the IRS may file a return for you, called a substitute for return, or SFR. Once the IRS files the SFR, the IRS will begin collecting on the unpaid tax bill.
  8. Filing back returns may require special processing procedures. The IRS may take longer to accept back tax returns. If you received a notice from the IRS regarding the SFR, you should file the return with the location specified on the notice. 
  9. Filing compliance is often a prerequisite to solve other tax issues. The IRS views taxpayers who haven’t filed all their required tax returns as noncompliant. As such, noncompliant taxpayers can’t obtain other post-filing solutions until they get back in compliance. For example, a noncompliant taxpayer can't set up an installment agreement on tax balances they owe or get a first-time penalty abatement.
  10. IRS Collection and IRS Examination can initiate and resolve non-filing compliance enforcement. Most SFRs originate in IRS Collection. However, IRS Examination handles enforcement for many high-income non-filers (income > $100,000) and business taxpayers. It’s important to understand which unit is enforcing the noncompliance, because you will need to resolve the back tax return with that unit.

It’s important to know how to deal with the IRS when resolving back tax returns. Many taxpayers choose to get the help of a trusted Tax Pro when getting back into filing compliance and back into good standing with the IRS. The experts at Jackson Hewitt can look into your tax situation and deal with the IRS for you to resolve your back tax returns and any other issues with the IRS. Start for free today

About the Author

Jim Buttonow, CPA, CITP, is the Senior Vice President for Post-Filing Tax Services at Jackson Hewitt. He’s been a leader in helping taxpayers and tax professionals resolve tax problems with the IRS, where he had worked for 19 years in various compliance-enforcement positions. Prior to his current role, Jim’s consulting practice focused on the areas of tax controversy and tax administration, which included leading product development on tax problem software for tax professionals, testifying before Congress, advocating for IRS transparency and efficiency, and proposing innovative large-scale solutions for taxpayers and tax professionals. Jim is also the author of Tax Problems and Solutions Handbook, a publication aimed at helping tax pros work more effectively in post-filing matters and resolving their clients’ most common tax problems.

View Jim's LinkedIn Profile Jackson Hewitt Editorial Policy

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