Eileen E. Jacobs, Enrolled Agent

Eileen E. Jacobs, EA

• 30 Years Income Tax Experience

Filing Back Taxes

Voluntarily filing your prior year tax returns will benefit you far more than ignoring the IRS. I have found that in many situations, IRS problems regarding back taxes are not nearly as bad as clients thought. The absolute worst thing you can do is avoid the IRS if you have not filed but were required to do so.

With filing back taxes, the sooner you file, the better. This is because you will have fewer penalties and interest accruing if you file and get on a payment plan. Depending on your situation, you may be eligible for an Offer in Compromise in which the IRS may accept an amount that is less than what you owe.

What if I was supposed to get a refund?

If a refund was owed to you, then you have 3 years to claim your refund. For instance, if your 2007 tax return was due on April 15, 2008, you have until April 15, 2011 to file and get a refund.

What if I never file?

The IRS will complete a "Substitute for Return" which is often to your disadvantage. For instance, if you were an independent contractor and/or owned a home, the IRS's Substitute for Return will show all the income reported to them, but many (if not all) of your deductions will be missing. By not claiming the deductions against your income, you will owe the IRS more. This does not even include the fact that the penalties and interest charged will be much higher because they are based on a higher amount.

If a Substitute for Return has been filed and tax has been assessed, the IRS can collect by placing a levy on your wages or bank accounts. They can also place a tax lien on your property.

What if the IRS already filed a Substitute for Return?

It may still be in your best interest to file a return. You may actually owe far less than you think. Being on a payment plan will result in lower penalties and interest over time. As stated earlier, you may be eligible for an Offer in Compromise. Realize that you cannot receive a car loan or mortgage with unfiled tax returns if there is a balance owed to the IRS.

Your situation may not be as bad as you think. Please call for a free consultation.