Delinquent Tax Returns

Many people use the head in the sand strategy when they fail to file tax returns for a particular year. They are so terrified of the IRS that they just stop filing. This is a fundamental mistake and fails to take into account the real view of the IRS on delinquent tax returns.

Starting in the late 90’s, the IRS underwent a complete shift in philosophy when it came to dealing with taxpayer issues. Essentially, the agency stopped spending hundreds of hours of manpower to collect a few thousand dollars in taxes. Instead, the IRS came to the conclusion it was better in the long run to simply get taxpayers back into the system. This philosophy applies to delinquent tax returns, to wit, the IRS is more interested in getting you back in the system than beating you into the ground.

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If you haven’t filed tax returns for a few years, the first step is to have returns prepared for those years. You may have excellent records for those years, but this is fairly unlikely. If you don’t, you can request copies of W-2s and income statements from the IRS, which essentially totals the income the IRS has on record for you for a particular year. Using these figures, tax returns can be prepared and filed.

If you continue to do nothing regarding delinquent tax returns, the IRS will eventually take action. The agency will first create and file a substitute return. This return is created using all the income sources reported to the IRS by employers, vendors and so on. The IRS then assumes you are single with no dependents and uses the standard deduction for the relevant year in determining the outstanding tax due. Once the tax assessment is made, the IRS will start pursuing your assets through liens, levies and garnishments. This means your bank account can be frozen, massive percentages taken from your paycheck and so on. The point being that you do not want to let delinquent tax return problems grow. You must deal with these issues and not procrastinate. 

Once you’ve created tax returns for the missing years, you may realize you don’t have the money to pay the taxes. The IRS acknowledges this situation occurs frequently and will set up a payment plan for the repayment of overdue taxes.

In dealing with delinquent taxes, we strongly encourage you to use a tax professional with experience in the field. Tax attorneys and CPAs are the best option and should save you far more money in taxes than they will charge you. An additional advantage of going this direction is you will not have to speak with the IRS. The tax professional will handle everything, which brings peace of mind to a lot of people.

Delinquent tax returns are not the end of the world. The key to overcoming the problem is to take steps before the IRS does. Delinquent tax returns can add unnecessary stress to your life. If you do something about them, you’ll find the process is fairly painless.