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UNFILED INCOME TAX RETURNS
Do You Have to File?
Tax returns do not necessarily have to be filed every year. If your income falls below a certain amount (depending on your filing status) then you do not have to file a tax return. However, the limits are small and most of us that support ourselves and families fall well above the specified amounts.
Back Tax Returns
If you don’t file a tax return, the time limit the IRS can assess tax and collect from you is indefinite. If you file, then the IRS has three years from the date of filing (or when it was due whichever is later) to examine the return and assess additional tax.
Even if you do not have specific documentation on your income or expenses, back taxes can, and should, be filed. Reconstruction of your income and expenses can be done that would hold up under an examination.
Reconstruction
The IRS has income information on file that is reported to them from various sources. Additionally, mortgage interest you pay and proceeds you receive from the sale or exchange of stocks and bonds are reported to the IRS and kept on file. When reconstructing back, unfiled tax returns the first step is to find out what the IRS has on file so the Preparer does not understate the income.
The second step in reconstruction is an in-depth client interview where the Preparer will gather all information necessary to calculate the income and expenses so if the tax return is examined the reported income and expenses can be substantiated and explained. Reconstruction of business income and expenses would include utilization of an "Industry Standard" – what other similar business have reported as their income and expenses. If no other income or tax information is available the IRS will accept these forms of reconstruction.
Advantages of Filing
Filing starts the Statute of Limitations clock. As above, the IRS can indefinitely examine and assess tax if you don’t file. Once you have filed the IRS has three years to examine and assess additional tax. But if the back taxes are reconstructed as above it is unlikely the IRS can assess additional tax.
Back taxes must be filed if you are planning to settle an IRS debt or pay in monthly installments
Total Tax Solutions is equipped with many years of tax return forms
and programs. We are very experienced and knowledgeable in the filing of back,
unfiled tax returns to ensure you have the least possible chance of being
audited.
