How Far Back Can the IRS Go for Unfiled Taxes?

Everyone owes the Internal Revenue Service (IRS) taxes for one reason or another. Those taxes are levied according to federal and local laws that aim to provide revenue for public services and keep individuals and businesses aligned with established rules regarding income tax.

There is no question that tax time can be a nerve-wracking ordeal each year, and that is when you don't own your own business. For small business owners and freelancers, doing taxes associated with work can be truly daunting. Some taxpayers may get so tied up in the stress of it all that they simply avoid filing taxes for the prior year or forget due to many other duties pulling at their time.

You may even be wondering: How far back can the IRS go for unfiled taxes? The simple answer is six years. According to tax law, if you have six years or less of unfiled taxes, you must file them to get back into good standing with the IRS.

This article will share some tips on catching up with back taxes if you owe them. It will also offer pointers on understanding your tax return more efficiently, what exemptions may apply to your tax documents, and how best to navigate if you are self-employed.

9 Tips for Filing Past Tax Returns With the IRS

Sometimes, the fear of the IRS imposing federal tax sanctions is enough for people to ignore or avoid catching up on old tax returns. While the process of getting back in good standing can be a little time-consuming, it doesn't have to be frightening. The trick is to understand what the IRS expects of delinquent filings, how to manage various tax forms, and what you should expect in back tax returns. Here are nine tips to get your late tax filings in order.

Confirm How Many Past Tax Returns You Owe

The first step to making good on your belated income tax returns is to gain a clear understanding of how many years you're behind. To do this, you will need to directly contact the IRS and ask them to inform you of how many years they show you as being unpaid. This is a vital step because it ensures that the information you have regarding your delinquency is accurate and provided by a reliable source.

It can be easy to forget or misremember your last active tax year without the official details, and you need to know which tax returns to dig up. It is also a helpful beginning because it allows the IRS to know that you are making your way toward completing your late filings.

Know You Might Not Get a Tax Return

One way to manage your expectations regarding catching up on your taxes is to know when and where to expect any refunds. The bad news is: Your bank account may suffer for your tardiness, and you may not be able to claim refunds that you may initially have believed you are due.

It's not the policy of the IRS to issue extant income tax refunds for any filings that occur outside of three years past their due date. This means that if you are filing six years' worth of back taxes, you should not expect to get anything back from those first three years. Certainly a bummer, but definitely better than the fees that can accrue when you don't file taxes at all.

Ask the IRS for Transcripts

The IRS can provide you with wage and income transcripts, and you need to ask specifically for these to trace your income tax history. Tax transcripts come in various categories, but all can be viewed in safe, encrypted online formats even if you didn't e-file.

Ensuring that you have the right transcript to serve as an official record of what the IRS says you have paid means you don't have to locate those payment proofs on your own, or you can compare them for accuracy alongside whatever records you have. You should also download or print your transcripts for your records once you receive them.

Without this information, the IRS may question the legitimacy of your income tax return. These transcripts verify the amount you may have paid for any estimated tax payments, which can help you get tax credits toward any tax bill you may owe.

Prepare for Penalties

Be prepared to pay a bit extra on your late-filed tax returns. Tax law allows the IRS to impose fines on you for failure to pay at the appropriate time, and you will want to budget for that possibility.

However, there are some helpmates in place if it is your first time being late or if you're in financial circumstances that penalties might worsen. Suppose your current finances are tight or unstable for reasons that are largely beyond your control, relative to economic downturns or provably temporary. In that case, the IRS will generally work with you on getting caught up in a way that doesn't break the bank.

Request Help With Penalties

The IRS can work with you on any penalties that you owe. There are installment agreement options available in most cases. You can also ask for first-time abatement if you have never been late in filing before. Likewise, if the reason you are filing late falls under the IRS's reasonable cause rules, the burden of paying the penalties can be lifted. For instance, a tax situation in which you have unpaid taxes due to a natural disaster, such as an earthquake, would qualify as a reasonable cause for missing a filing deadline.

See If the IRS Has Filed Past Tax Returns for You

In some cases, you may find that your back taxes have already been filed without you or your certified public accountant (CPA) even knowing. It sounds great but can get tricky. Sometimes, the IRS starts a process called a substitute for return (SFR). If they have filed an SFR, your new tax return will compete with their substitute.

Your tax return will be closely scrutinized in the case of an SFR, and you should be prepared for the overall process to take longer. The IRS only completes an SFR for taxes filed three years after the due date of a return, so if your filings are more recent than that three-year mark, you're in the clear and don't have to worry about an SFR situation.

Check on Any Notices or Letters From the IRS

Late filers should have all correspondence relating to their unfiled taxes handy before they begin trying to catch up. The IRS sends out various notices and letters for past-due tax returns. You will need to closely examine any you have received to know which IRS unit to follow up with and how to do that successfully.

Set Up a Payment Plan

Depending on how much you owe in back taxes, you may want to pay right away or feel it more prudent to set up a payment agreement to manage your tax debt over a longer period of time. Always consult with a tax expert before finalizing commitments on a federal tax return, as there may be a statute of limitations in place that you are unaware of or special tax filing benefits for businesses hit hard by COVID-19.

Once you are certain that you know how much money you owe the IRS, you have a couple of options for payment. The most important thing is to establish how and when you will pay so that the IRS does not place any liens or levies against your property, finances, or other assets for nonpayment.

Ask for a Stay of Enforcement

If you find that you owe more taxes than you are currently able to pay, don't panic. You can still apply for a temporary stay of enforcement to take the immediate pressure off and give you time to save. Essentially, a temporary stay of enforcement means that the IRS has determined that your current financial status does not allow for the collection of your debt at this time. A stay is not a dismissal of the debt but rather a temporary delay placed on its repayment in which you would not be charged interest or other fees.

Keep Caught Up With Skynova

Of course, the best way to avoid the hardship and headaches of figuring out how to pay back taxes is never to have any. Paying your taxes in a timely manner each year saves you a world of worry.

Taxes can get especially prickly when you are a small business owner or a freelancer. However, with Skynova's software products and business templates, small business owners and freelancers alike can track and manage their accounting with ease. Check out Skynova's accounting software to simplify the process of getting paid and staying organized so that the next tax season will be a piece of cake.

All writers’ opinions are their own and do not constitute financial advice in any way whatsoever. Nothing published by Skynova constitutes a financial or investment recommendation, or tax planning advice, nor should any data or content published by Skynova or available through any Skynova site be relied upon for any financial or investment activities or tax planning.

Skynova strongly recommends that you perform your own independent research and/or speak with a qualified financial, investment or taxation professional before making any financial, investment, or tax-planning decisions.

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