Getting Back Into Tax Compliance

Why You May Need to File Back Tax Returns

• Settlement requires it: You must be current on tax filings before the IRS will accept an Offer in Compromise or an Installment Agreement.
• Avoid a Substitute for Return (SFR) and minimize your tax liability :If you do not file a tax return, the IRS may prepare and file a substitute return on your behalf. The IRS will not give you credit for all of your deductions, credits, and expenses, resulting in an artificially high tax balance. In many cases, we can significantly minimize a taxpayer’s outstanding tax liability simply by filing correct tax returns for those prior years. An SFR can make future tax resolution significantly more complicated.
• Claim refunds, credits, or utilize losses: You may be entitled to a tax refund or tax credit (such as the Earned Income Tax Credit) both of which must be claimed by filing a tax return within three years of its original due date.
• Minimize penalties and interest: Penalties and interest will continue to accrue until you file. Filing past tax returns can help minimize those penalties and interest.
• Preserve your access to credit: Mortgage brokers, auto lenders, and business financiers often require borrowers to provide copies of tax returns. Filing back tax returns can open the door to credit opportunities.

How to File Past Due Returns

Getting caught up on unfiled tax returns can be overwhelming. The following steps will help:

• Hire the right professionals and make a plan: Hiring experienced professionals to assist you in making a plan and driving the project to completion is usually the best first step. The tax professionals and attorneys at the Business Law Group can help you develop a plan for getting caught up while minimizing the risks associated with multiple filings.
• Assemble your documents: Locate your W-2s and 1099s for the years in question. Find your mortgage interest statements, tax statements, mileage logs, and other receipts. You may need to assemble bank and credit card statements. The attorneys at the Business Law Group can help you identify the documents you will need to finalize your returns.
• Pull transcripts: Request the necessary tax transcripts and wage and income transcripts from the IRS to assist you in your tax form preparation.
• Complete your tax returns: When possible, use the services of an experienced tax preparer to prepare your back tax returns. The Business Law Group works with a number of local CPAs experienced in filing back tax returns. If you attempt to prepare the returns yourself, you must use the correct year tax return and instructions for each filing. The IRS usually makes the forms available for the last six years.
• Have a plan for payment: Filing back tax returns puts you on the IRS’s radar, if you were not already, and means you need to have a plan for paying any outstanding balances.
• Plan for future compliance: Getting compliant is important, but most tax resolution options will require that you also stay compliant moving forward. Develop the relationships and tools that will help you remain complaint in your tax filings moving forward.

Common Forms

• IRS Form 2848
• IRS Form 4506-T