Discussion:Late filed return

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Discussion Forum Index --> Tax Questions --> Late filed return

Frontenac (talk|edits) said:

14 December 2006
Client filed through 1995. Did not file 1996-2002. Filed 2003 through 2005. Wants to file back returns. How far back do you have to go? I had read in an article to only go back 6 years but not authority for this.

Any comments.

Waynecpa (talk|edits) said:

14 December 2006
I believe any years not filed are open for the IRS to come and assess taxes on. They should be filing to at least get the statute time running. Any refunds they would receive from these years are lost of course, but at least get them in!


San Diego (talk|edits) said:

14 December 2006

notice the sentence: "For people with multiple unfiled returns, IRS practice is generally to limit investigations and examinations to the last six years."

In cases of fraud I believe it's extended to 10 years.

San Diego (talk|edits) said:

14 December 2006
Also addresses the statute of limitations on refunds.....

Skasselea (talk|edits) said:

14 December 2006
There are some statements here need a little clarification and one that is potentially dangerous. First, of course, there is no statute of limitations on unfiled returns. Second, in cases of fraud, the IRS is not limited to 10 years. They can go back as far as is needed, although admittedly it isn't often that they do so. Third, under Policy Statement P-5-133, it is correct that GENERALLY the IRS will not pursue returns more than six years old. HOWEVER, I suggest you look at the actual language.

P-5-133 states that "Taxpayers failing to file tax returns due will be requested to prepare and file all such returns. Where it is determined that required returns have not been filed, to the extent to which compliance for prior years will be enforced will be determined by reference to factors ensuring evenhanded administration of staffing and other Service resources." Also included is the statement that, "Normally, application of enforcement criteria will result in enforcement of delinquency procedures for not more than 6 years." However, there may be exceptions based on the level of non-compliance, when additional years are required for resolution.

Fourth, if you contemplate filing an Offer in Compromise, you should be aware that ALL tax returns must be filed in order to be eligible for an Offer. If all returns are not filed (unless a return was not legally required to be filed) you cannot file an Offer.

Fifth, I strongly disagree with the blanket statement that ANY years that are not filed should be filed to get the statute running. In fact, advocating this blindly is an open invitation to a gigantic malpractice suit. You had better understand your client's complete circumstances before you go down this path. IF you are relatively certain your client will qualify for an Offer in Compromise and you have no choice but to file all delinquent returns, no problem, BUT...you could be opening up a giant can of worms, too.

http://www.irs.gov/irm/part5/ch08s03.html (09-01-2005)

Taxpayer Not in Compliance — All tax returns for which the taxpayer has a filing requirement must be filed. This rule applies even if a Service employee previously decided not to pursue the filing of the return under the provisions of Policy Statement P-5-133, because it was believed to have "little or no tax due" . In-business taxpayers must have timely deposited, filed, and paid all required employment tax returns for the two (2) preceding quarters prior to filing the offer and must be current with federal tax deposits for the quarter in which the offer was submitted. An individual taxpayer should not be considered an in-business taxpayer because he owns or controls a corporation that is not in compliance. IRM, Rejection, discusses the criteria for possible rejection of an offer from such an individual if a related entity is not in compliance.

Lizzit (talk|edits) said:

15 December 2006
It depends.

1) If the IRS were to compute the tax on 1996-2002 based on what they know (single or MFS, standard deduction, one exemption, no credits, and all 1099s, W2s, K1s, etc), would there be a balance due?

2) If you compute their actual tax (all their non-reported income, such as self-employment, cash earnings, under the table earnings, offshore earnings, etc., together with all their actual expenses, deductions, exemptions, and credits), would there be a balance due of more than (approx) $500?

If the answer to Question 1 is yes, you need to file for each year Question 1 is "yes". Otherwise, the IRS will bill them for the tax at their computed rates. As a tax professional, you should have no problem getting the tax lower than the IRS would.

If the answer to Question 2 is yes, you need to file for the past six years, except in criminal negligence cases, where they can ask for as many as 17 years. Certainly, you need only do six to start with and see if they ask for more.

In all other cases, the IRS accepts three years. Again, the IRS may specifically request more, but will be unlikely to as there won't be any financial benefit to them to do so.

"Materiality" is an accountancy concept that deals with whether or not the results of accounting work merit the cost and time resulting from the amount of accounting work involved. The IRS understands and accepts the concept of materiality. The IRS does not wish to see people suffer undue hardship in the form of expensive filing and tracking down old returns and laws when there is no material reason to do so.

The IRS specifically recommends three years at their London US Embassy website. http://london.usembassy.gov/irs/irsfaq.htm


"I am a U.S. citizen who moved to the U.K. several (or many) years ago and thought I did not have to file U.S. tax returns any longer. Now I have learned that information was incorrect. What do I do?

"This is a common misunderstanding among Americans abroad, and should not create anxiety for those who find themselves in this situation. Generally, you should file returns for the past three years, taking the foreign earned income exclusion, the foreign tax credit, or both."

You can then extrapolate from this that anyone (regardless of residence) who does not owe need not file for more than three years unless specifically requested to by the IRS. Indeed, the IRS Tax Attache at the US Embassy has told me this herself in person.

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