QnA about Filing Back Taxes
First things first, as the saying goes. You need to track down missing tax documents. This is usually accomplished by calling the IRS and asking them to mail or to fax you a "payer transcript" for the years you haven't filed. A payer transcript is a printout of information from W-2 forms, 1099 forms, and other tax documents filed with the IRS. This information is generally accurate and reliable. The payer transcript is limited, however. It does not contain any tax information related to the state (such as state income tax withholding). So, call your state tax agency to obtain any information about tax withholding.
Step two, prepare your tax returns. Download tax forms from the IRS and state tax agency websites. Or purchase tax preparation software for previous years.
Step three, prioritize your tax returns. Tax refunds have expiration dates. Generally, you have three years from the original due date to file a tax return and claim a tax refund. For example, your 2001 tax return was due on April 15, 2002. 2002 plus 3 equals 2005. You have until April 15, 2005, to file your 2001 tax return and still get a refund.
This is very important, listen up. File your 2001, 2002, and 2003 tax returns as soon as humanly possible. You can still get refunds for those years. If time is of the essence, file your 2001 tax return ASAP. The other years (2002 and 2003) can wait a little while longer. The last thing you want is to lose your refund because the time limit expired.
Step four, file the rest of your returns. There can be strategies for prioritizing your filing if you need to spread out the work over a longer period of time. But in general, once you've filed your 2001 return, you can go back and file in chronological order. This is generally the method I recommend because you get to take care of the oldest years first, and secondly because some of the later years you can still wait a few weeks to complete.
Step five, know your penalties. There are three different penalties applied to late tax returns. Pay attention to these penalties, they are very important. Just as important as knowing the 3-year expiration deadline. You absolutely must know this: if you have a refund, there are no penalties. Let me repeat this for emphasis: REFUND = NO PENALTIES. Why? The tax code is very clear about this. Penalties are calculated on the balance due. If there's zero balance due, or a refund, there's no penalties to calculate. Twenty-five percent of zero equals zero!
So, when preparing your tax return, aim for a refund. If you can dig up enough receipts to itemize, go for it. If you went to school that year, be sure to tax an education credit. If you got married, got divorced, or had kids living at home, be sure to take all that into consideration.
Let me say this another way. Let's say you are preparing your 1999 tax return. Now, your tax refund, if any, for 1999 has expired. It's beyond the 3-year deadline. That means if you had a refund, you won't get a refund check from the IRS. But showing a refund on the tax return also means no penalties for filing late! You really, really, really want to show either a zero balance (breaking even) or a refund. It doesn't matter if it's a small refund or a big refund. So, once you are in a refund territory, stop and mail your tax return.
What if you owe? Here's what you are facing. First, review the penalties: failure to file on time, failure to pay on time, and interest on the amount owed. Interest rates change every quarter, but you can guesstimate between 5% and 10% in annual interest. The late payment penalty is 0.5% (half of one percent) per month for each month your tax bill is not paid in full. Now for the biggie. The failure to file penalty is 5% of the tax due per month for each month the tax return is late, up to a maximum penalty of 25% of the tax due. You reach the maximum late filing penalty after just five months. (Note to future self: if you anticipate being late, file an automatic extension and a second extension. That will give you until October 15th to file a return.) So, using the example of a 1999 tax return with a balance due. You are already five months late, so add 25%. Add another 0.5% for every month you are late for the late payment penalty. (So, if you are 60 months late, that would be 60 x 0.5% equals 30%.) Plus add interest on the balance due for each year you are late (another 5% to 10% per year). On a five-year old tax return, this can easily double your balance due.
All the more reason to maximize those deductions on a late tax return. The smaller your balance due, the smaller your penalties.
Now, going back to your filing strategy. Let's say you have prepared five years worth of tax returns (1999 through 2004). In 2001 through present you are getting refunds, but you owe for 1999 and 2000. There's a three things you can do.
Option 1: file all the returns at the same time (but in different envelopes), and mail in a check for the balance due per the return. The IRS will send you lots of mail, and will calculate your penalties and interest on the balance due. Some of the refunds may be withheld to pay the back taxes. Or you may receive refund checks before the IRS processes your older tax years. Pay off your back taxes as quick as possible.
Option 2: file the older years first, plus the 2001 return to protect your refund. Wait for the tax returns to post, and for the IRS to calculate your penalties. Then send in the later tax returns with refunds, and allow the refunds to be withheld to pay off the balances from earlier years. Then, when the IRS has processed everything, see how much you still owe and make arrangements to pay it off as quickly as possible.
Option 3: file the more recent years first, including the 2001 return, to obtain your tax refunds. Then, file your older tax returns and use your refund money to make large payments with the tax returns.
Because the IRS takes longer to process older tax returns, all three options take about the same amount of time. How you want to proceed depends a lot on your individual tax situation, and how you want to handle the cash flow problem. Generally speaking, I have found it really doesn't make a whole lot of difference which strategy you use to mail in your tax returns. In the end, it still takes a long time, and you still need to make payment arrangements to keep the IRS from harassing you further. So unless there's some other compelling reason, I recommend people file all their tax returns at once. Send them to the same IRS service center. But mail them in separate envelopes. Send them by certified mail. And keep the certified mail receipt as proof you filed your tax returns.
I know its impossible to say when exactly but I was wondering approx. how long it takes to get late filed tax refunds back? This year I filed 02-07 and I owe ZERO and both federal and state owe me for each year I filed (about $4,000 total).
After reading the article above, are you saying I will not be penalized for filing years late?
What kind of penalties could I APPROX owe and how soon will it take to get the $$$$?
Jordan, First, it will be important to know which day you filed your returns. Because April 15, 2008, was the last day to file a return and get a refund for the year 2004. That’s because there’s a three-year time limit on refunds. You are getting refunds for 2005, 2006, and 2007. The earlier years (2002, 2003, and possible 2004 depending on when you filed) are no longer refundable. Since you had refunds for all years, there won’t be any penalties or interest, because those are calculated based on a balance due. If there’s no balance due, there’s no penalty.
As for the refunds, they can take quite awhile for the IRS to process. Typically, I would expect the IRS to issue you written responses in approximately 8 to 12 weeks. I have just this month (June) been getting notices from the IRS for returns I filed in early April, and that’s about 8 to 10 weeks after we have filed.
You’ll also get letters from the IRS in addition to refund checks. You’ll get one letter for each year you filed saying that the IRS processed your tax return. If they previously assessed any taxes or penalties, the letters should also state that the penalties or tax were recalculated based on what you filed. So, I would expect the refund checks to arrive later than the notices, give this about 12-16 weeks.
The reason for this long time period is this is the busy time for the IRS. They process current year tax returns first before handling earlier years, and there’s fewer workers who are skilled in processing the older returns. And even after the return processing, the IRS has to do some extra processing and checking to make sure your money gets to you.
If you haven’t heard from them after 12 weeks, I would call and find out what’s going on.
I am a state and federal nonfiler since 1995. I have a concern that requesting a payer transcript from the IRS and similar forms from the state will immediately alert those entities to my nonfiler status. Would you advise involving a tax attorney, or one of the so-called ‘tax professionals’, or even a CPA for someone like myself who has a very real concern about facing potential consequences from the IRS?
Mike, The IRS and the state already have the ability to tell whether or not you filed a return. The issue really isn’t about letting them know you haven’t filed. The thing to worry about is the agencies trying to extract all sorts of irrelevant information when all you need at this point are copies of your tax documents. Let them know that you are going to be filing all your returns, but you need your “wage and income transcript.” For the state, you’ll need your state tax withholding figures. They might also have copies of your W2 as well.
The tax agencies might have assessed some taxes and penalties already. Be sure to get a break down year by year. Also, ask the agencies for a temporary hold on collections until you can file, and then set a reasonable deadline for filing all the returns such as 90 days. This will give you the time you need to receive the income documents, file the returns, and the agencies to begin processing them.
A licensed tax professional such as an attorney, CPA or enrolled agent can help by talking to the agencies for you and preparing the returns. But in the end, the agencies should be relieved to hear that you’ll be filing your returns.
Thanks for the prompt reply. A follow-up: are there any tax implications for me if I was married during some of the years that I did not file and my spouse earned income?
Mike, you will need to determine if your spouse already filed a separate return, and if so, whether she itemized or took the standard deduction. If she hasn’t filed, then the both of you will need to decide whether to file jointly or separately. If you are no longer together, it will probably be in everyone’s interest to file separately, even if that means a higher tax bill, because then each person will be responsible only for his or her own taxes.
Hi Mike,
I’m in Missouri and late filing several years for my BF. FUN! Is there a refund deadline for the state of Mo? Thanks in advance for this and all of your VERY helpful advice.
-Allison
So embarassed…
Certainly meant to address the above to William, really I did.
Allison, Missouri has the same refund deadlines as the feds. The relevant law here is the Missouri Revised Statutes section 143-801 which provides for a refund deadline of 3 years from the original filing deadline or 2 years from the date of an overpayment.
I am in the process of filing a back tax return for 2001. If filed on time I would have received a refund, however I understand that I am now beyond the 3yr deadline.
I have had multiple tax refunds “credited” toward the substitute tax return total due including the withholding of my entire stimulus check. Since I am about to file a return showing that no penalties should have been assessed, will the funds previously withheld as payment toward the inaccurate balance be returned to me?
Eric, Yes. The refunds that were applied to the year in which the IRS assessed additional tax as the result of a substitute tax return will be refunded to you. The only caveat is that the overpayments (in this case applied refunds and stimulus payment) need to have been credited to that year within the past two years. The original 2001 refund would not, however, be refunded because it is beyond the 3-year statute.
Hi William, Similar question to Eric. I had late returns to file from 2000, 2001, 2002, 2003. All the the returns were filed and had refunds due back to me. I understand that I cannot get any refund past the 3 year mark, but they had combined the 2000-2003 penalties and interest and have been keeping my refunds from 2007, 2006 and 2005.
Will the penalties and interest be recalulated and then will I get the past refunds that were held for 2007, 2006 and 2005? I just received my 2nd notice that they could not allow the claim for the 2000 return. This comletes 2 notices from each past year filed. Therefore, how long should I expect a recaluation to take place and when shall I expect any refunds? Do I need to write additional letters to request a recalculation? Thanks for your help.
David, the IRS should recalculate your penalties based on the fact you had refunds instead of balances owed. This will happen generally around the same time that you get your letter saying that your claim for a refund was not allowed due to the statute of limitations.
After the penalties are recalculated, the IRS will then re-apply your refunds. Any net overpayments (that is, if all your taxes are paid off, and there’s still money left over) will be mailed to you. This can easily take up to a couple months extra.
What I do is wait until all those “claim for refund not allowed” letters to arrive. Once I have that letter for all years that were filed, I then call the IRS and get a record of all the account transactions (called an account transcript). This will show taxes owed, payments, penalties, corrected payments, refunds…. in other words all transactions involving money. What you are looking for is to see the overpayments refunded back to you.
This takes some time as there are multiple years involved. So just be patient. If you haven’t received refund checks by the 3rd month, then I’d start calling the IRS to make inquiries.
What’s the longest someone’s had to wait for a back tax return filing to ‘clear’ in order to get the balance of current tax refunds paid? I’m waiting on over $4,000 from this year’s return to be sent and it’s nearly September. I filed my 2002 return in late March; the IRS withheld $4,000 from this year’s refund due to that late filing. By my calculation, that’s 5 months now waiting on the refund and counting…. IRS told me nearly a month ago via phone ‘any day now’.
CR, it can certainly take a long time for the IRS to process returns from earlier years. Waits of up to 6 months are not uncommon. Since the IRS has already told you it will be “any day now,” that probably indicates that they can see you filed a return and just need to finish their internal processing so your refund can be released.
If you are still worried, the next time you call the IRS, ask them what day the 2002 return was received, and when the return will post to their system, and how long after that until your 2007 refund can be issued.
Can you make any recommendations of professionals that can help me in the Washington DC area?
Thank you for your site. I tried to find some info from the I.R.S. site and tried every word configuration I could think of and got no-where, it took me about 20 seconds here.
I have been a non-filer for 5 years, due mainly to some health issues I had, and inability to pay. I know I should have just filed, but after the first year, went to the 2nd year, etc. I now want to get this straight, so I don’t face legal action. But, if the tax is too much to pay, even on an installment plan, what happens then?
Your site sure is helpful. My question is that the IRS garnished my Social Security based on a substitute tax return the IRS prepared for 1994. I have now filed the 1994 1040 showing no tax due and the IRS has agreed. However, now they want to keep the involuntary SS deduction that is over three years old. Do I have any recourse?
Ike, the garnished Social Security benefits can be refunded only in the following two situations: the tax return is an open year under the 3-year statute of limitations for refunds, or the garnishment happened within the last two years. Tax year 1994 is closed for receiving refunds under the 3-year statute. Any payments made in the previous two years, including garnishments, could be refunded. Any payments are older than two years are no longer refundable, however.
William, I am trying to help my dad file his back taxes. I think it’s been since he and my mom divorced (8-10 years).
Here’s some issues I’m having. He’s a small farmer and beef producer (self employed). The reason he doesn’t want to file is because he can’t afford penalties. He has saved his checks/bank statements for all the years, but not receipts. I have read your site and understand that I want to show a refund (It’s possible that he could show a loss on many of the years), but he never paid any self employment taxes. How should I go about this situation. Still contact the IRS for the “payer transcript” for all the years, would he even have those if he he’s self employed?
He needs to do this, he’s almost 60, and I think he thinks he can run from this until he dies, but I don’t think so. He has recently understood the need to have taxes done, as he couldn’t get a land loan at a large bank…would you belive his small town bank still loans him money on his word?? He just went to the big bank looking for a lower interest rate.
Anyway, any advice you can give me would be so greatly appreciated. I really want to get this taken care of as easily, quickly, and inexpensively as possible for him.
Erin, I can sympathize with your dad’s situation. This is something I’ve seen many many times. In fact, I think banks are going to become even more adamant about seeing copies of tax returns to verify income especially in the aftermath of the mortgage crisis and the bailout legislation.
The basic thing to remember is that your dad’s income tax and self-employment tax are both calculated based on his net income from his farming. So the most important thing is to make sure you can tally up both his total income and all his farm-related expenses for this years. The goal is to be as complete and thorough as possible, as this will keep his tax as low as possible, and in turn this will keep his penalties as low as possible.
The other thing to keep in mind: there is a three-year time limit for Social Security credits. These SS credits are used to determine a person’s eligibility for SS retirement and disability benefits. What this means, at a practical level, is for tax years older than 3 years, your dad will be required to pay the SS/Medicare tax (the self employment tax) but he will not earn about SS credits for those older years. So for those older years, my preference is to be as thorough as possible about documenting expenses so as to keep his tax as low as possible. (Since he’ll get no benefit even though he’ll have to pay the tax.)
For years when he has losses, those losses are very valuable. They will offset his other income (interest, wages, dividends, etc.) and any loss in excess of his income can be applied to another tax year (usually: either the 2nd preceding tax year, or the subsequent tax year). This decision is best made by first preparing all the returns he needs to file, and then seeing where the loss can be best utilized in terms of keeping his tax, penalties and interest at a minimum.
What I would do is create a to-do list. I would first start with the income transcript from the IRS. This will show any 1099s and other tax documents filed with the IRS to report his income. I’d then use that as a guideline for digging up additional information about his income and expenses. I would probably focus on getting the more recent years filed, since he will probably have more complete records for those years. And then I’d start working back to see what documentation is available. Sometimes IRS agents are willing to waive the requirement to file really old years, but what’s crucial here is that the IRS agent “closes out” those years by inputting a closing code on their system that indicates the taxpayer has been told they don’t need to file a return. This protects your father from the IRS coming back later and demanding a return. Simply not filing won’t offer the same level of legal protection.
That’s the general plan for working on your father’s tax project. This will take time and patience. He should be working with an experienced tax professional on this project, because there are little things that can really help move the project along faster.
Hope this helps. Let me know if you have any additional questions.
William
How many years does the IRS go back for filing back taxes? i recently visited my local IRS and was told the years going back to the late 90’s were not needed UNLESS the IRS had sent a letter to the tax payer to collect for those years?
There’s a couple of ways to answer this question. Legally, the IRS can demand any unfiled tax return. That’s because the statute of limitations on IRS actions (such as audits and collections) does not start until the tax return is actually filed. If no return is ever filed, the IRS could conceivably force the person to file at any time, even if several years have elapsed.
However, filing for older years is often unfeasible. Documentation such as W-2s, 1099s, bank statements, and receipts have a way of getting deleted, purged, and shredded. So on a practical level, it is often impossible to accurately find records for a return that was due more than ten years ago.
That being said, I’ve seen the tax agencies take different perspectives depending on the case. One time I had a state tax agency demand that the client file her 1985 tax return. Other times, we’ve been able to ask the agencies to overlook a year for which we were no longer able to find W-2s. These sorts of decisions are made on a case by case basis, and it’s best to document the decision made by the tax agency with the agent’s name, badge number, and the date and time of your communication.
William thank you for creatting this site it really helps to understand the way the IRS works but I had a qwestion: the last time I filed my taxes was in 2003 I was hurt on the job in 2007 and awaitting surgery now every sense. Once I have surgery and recieve my seattlment can the IRS collect any past due amount if any.
Mr Powell, it’s hard to say exactly what’s going on in your situation. Do you owe from a tax return filed in 2003 or earlier? Or has the IRS assessed tax for 2004 and later years? If the past due amount is from an assessment, it will generally be advantageous to file the return as that usually results in a lower tax due.
That being said, the IRS can hold off on collecting money from you until you are able to go back to work since disabilities usually fall under the IRS’s guidelines for placing an account into not-collectible status based on financial hardship. You may also qualify for a reduced payment plan that can fit into your monthly budget.
The main thing will be to figure out how you can protect yourself during this time of financial uncertainty and also satisfy the demands of the IRS. It might be helpful to speak with a licensed tax professional to obtain some more specific advice that’s tailored to your particular circumstances.
My child’s father has his taxes garnished due to back child support. He has decided not to file for the past 3 years because of this. Is this allowed? His employer (his father) files taxes for him and also deducts 50% of pay prior to taxes. This is not right. Any advice?
V
Hi, I’m reading this website and really appreciate the time and effort that goes into it. So thank you in advance.
I’m late filing 2005, 2006 and 2007 for a friend of mine who qualifies for EIC, he’s a chronic nonfiler and I’m curious if putting the correct amount EIC on the 1040 form will have any effects on future filing or needs mentioning in future employment situations.
V, I take it to mean that the employer is reporting his wages to the IRS (on Form W-2), as well as deducting taxes for previous years and turning that money over to the IRS. This is what employers are required to do when the IRS garnishes a person’s wages.
At this point, the person will benefit by filing his tax returns. As the amount he owes to the IRS is probably far less than what the IRS thinks he owes. Getting current with his taxes and child support will remove the wage garnishment. The sooner he can get this taken care of, the sooner the IRS will allow the garnishment to stop.
Maryam, Thanks for the compliment; I really appreciate it. The earned income credit usually will not impact future tax returns. And employers shouldn’t be ask about a person’s tax situation, as that information is supposed to be strictly confidential.
what is the average cost of filing w-2 forms for a couple that must file injured spouse and can we go back to 2005 and will we get the refund
Hey William, my brother has decided to file taxes for the first time. He’s been working for about 8 years and is hired on under contract labor. He has had to take out taxes himself, which obviously he hasn’t. He is thinking of just filing for this year and then seeing what happens. Is it best for him to file all of them at once, even if he can’t find all of the information? Is there a specific process he’ll have to go through because of the contract labor?
Sis, every accountant charges differently, but the average price for a straightforward tax return like yours should be around $150 more or less. Refunds from the year 2005 expire on April 15, 2009 (three years after the filing deadline). So I’d file your 2005 return as soon as possible to protect your refund.
Anastasia, contractors get to deduct any expenses they incurred, and this can help keep his taxes lower. He should try to dig up all the expenses he can. Also, he’ll have two different taxes applied to his earnings: the regular income tax and a self-employment tax of 15.3% to cover Social Security and Medicare. I’d recommend that he talk to an experienced tax accountant for more specific advice on how to proceed as there may be several issues to address, such as whether the IRS has assessed tax for the years in which he hasn’t filed.
I have a question. I have a family emergency last year around tax due time 4/15/2008. I filed a extension and went oversea. After I return, I forgot it and finally file the tax and mail it out on 12/17/2008. I should get a refund for it, but has not shown up in my bank account yet. I have not received any mail back yet either. The tax return address for late filing is confused and I don’t know if I sent to the right PO BOX number? How can I check the status of my tax return for 2008?
How long should it take to get my last year’s refund back, both state and federal.
Thanks!!
Jean, the IRS takes longer to process late-filed returns. I would expect your refund to show up in approximately 12 to 16 weeks from the date you mailed it off. One thing you can do is call the IRS at 1-800-829-1040 and ask them if they have received your tax return and if they have any idea how long it will take to get your refund.
I need to file my back taxes for 07-08, I have all of the forms filled out from both years but I just didnt have the money to pay them until now. Can I just send my check with the old forms or do I need to fill out all new ones?
I had taxes from 2001 but last year I got my new Social security can I make the taxes and get a refund? or not
hello,
I just helped my mother file her back taxes for 2005 and 2006. Am I to understand that this is in the 3 year period and that she should get her full refunds without any penalties? They also garnished her wages last year for the ‘assumed’ amount that she owed for her 2005 taxes but the 2005 tax that I just filed for her showed she gets a 1245 dollar refund. Will she get that refund as well as all of the money garnished from her wages last year?
Thanks for all of the helpful information William!
My first question was answered by you in a previous post ~ to file the most recent of past year returns first to protect the refund.
My follow-up question would be… should I anticipate an actual refund? or will the IRS hold on to it until the prior years’ (older than 3 yr.) returns are filed?
TIA
Another question. My husband and I lost about 40K dollars to a Ponzi scheme. Can this be filed under the Casualty Theft/Lost deductions?
Please say yes..
Thanks again!
A relative has worked odd jobs for cash for the last 11 years. This person has not filed at all in this time period. The person has finally come to realize the risk of severe financial and legal repercussion. What is the best way to proceed to square up with the IRS? The person has never received any notice of owing the IRS but they would like to get the monkey off their back. Would the affected party be arrested if they do contact the IRS? Is their any way to avoid arrest? Due to the cash and personal check payments(approx 10K-25k a year)the person has little record of any finances beyond the past few years and even these are sketchy. How would they go about figuring a taxable income total? This person is also concerned with possibly implicating the persons responsible for paying them in the form of personal checks. Any insight to this mess would be greatly appreciated.
i have not filed my 2004 taxes yet and owe about $100. i received a stimulus check for less than the $600 advertised by the irs. does this mean that the irs has taken out the tax and penalties i owed from 2004? i received my w2 forms a couple of years late due to a move is there any recourse to lessen penalties as a result of this happening?
Charlotte, as long as the tax forms you already filled out are complete and correct, you don’t need to fill out new ones. Just mail them in to the IRS and send along your check.
One tip: do send the two years in two separate envelopes. Otherwise the IRS just gets confused and might process the returns incorrectly.
And for future reference. If you get in this situation again (where you are ready to file but cannot afford to pay right away), then I suggest filing the returns and setting up a payment plan. The penalties will be much lower if you file on time.
Pat, Sorry, but I’m not sure I really understand your question. If you need to file your 2001 tax return, then you’ll need to report only the income and deductions you had in that year. If you recently received a lump sum payment from Social Security for the year 2001, that payment will be income in the year you actually receive payment.
Jane, you are absolutely right. As of right now (early 2009), your mom is eligible for refunds from the years 2005, 2006, 2007, and 2008. Here’s how the 3-year refund statute works. It’s three years from the original filing deadline. The ‘05 return was due on April 15, 2006, so you have until April 15, 2009 (three years later) to file and still get a refund.
The amounts levied from her wages are also refundable. There’s a separate 2 year statute of limitations for overpayments of tax (such as levies, garnishments, and after the fact payments). So if all the garnishments happened last year (2008), then those are fully refundable.
The IRS should issue her a refund for the full amount that has been paid in, but it may take awhile, and they might move her refund money from one year to another temporarily. For example, if they work on 2005 first, then may move some of her refund money to 2006 if their assessment shows a balance due.
In the end though she should get back all of this money. Just keep track and review the notices that come in from the IRS showing how her refund amounts have been calculated.
Sandy, it’s always a good idea to file the more recent returns as soon as possible to protect the refunds. Now, for the older years, here’s what could possibly happen. If the IRS has assessed balances on those years (that is, the IRS thinks you owe for those older years), then the IRS will move your refunds from the more recent years to the older years. The IRS will likely move them to the oldest year first. In this scenario, you’d then need to file for the older years to show any tax due or refund. Once those years are filed, the IRS will keep moving the money around to any years you owe, and refund you the difference.
I hope that makes sense. But let me rephrase things another way just in case. The accounting for balance due or refund will happen for each tax year. If there’s any refunds, the IRS will check to see if they can be released. And if so, they will then check to see if the refunds need to be moved to another year to cover a balance due. They’ll keep doing this checking until all the years are processed. If a recent refund is applied to an older year, that refund is still refundable to you if that older year doesn’t really have a balance due.
As for Ponzi schemes, there’s no specific deduction for them. If the scheme was represented to you as an investment, you might be able to report this as a capital loss. Alternatively, you might be able to report this as a Theft Loss Deduction (which can be mathematically more advantageous than the capital loss anyways).
Ken, this is an excellent question. It’s best discussed with an experienced tax professional, as there are several different factors to consider here. Broadly speaking, the IRS is rarely interested in sending someone to jail (well, unless you’re a movie star or politician or criminal and they want to make a huge point with the media). So I would not worry too much about jail and instead worry more about how to go about actually reporting the income. It’s better to file an accurate return than an inaccurate one. And so my concern here is that with incomplete records, your relative might actually end up reporting too much income and thus overpay in taxes and penalties.
I realize that this is a relatively sensitive issue, and so if your relative wants to, (s)he can email me and I might be able to give a more tailored response to the situation.
Matt, It is possible that the IRS took part of your stimulus payment to pay taxes from an earlier year, or to pay child support or student loans. If that happened, the IRS should have notified you of where they sent that money. In any event, I would try to file your 2004 taxes, as your calculation of how much you owe is probably less than the IRS’s guess of how much you owe.
Generally, the IRS will waive penalties only for reasonable cause, and the IRS has taken the position that reasonable cause for not filing means that the individual was incapacitated in some way (that is was physically or medically unable to file). So penalty waivers are usually pretty hard to get approved.
If i have a 2005 w-2 to file do i need to use a 2005 tax program to do this or can i file on the irs main site? what do i do?
I have a question about filing back tax on my parents who are both deceased (and had not filed taxes for a long time) can we file on their behalf? Would we be eligable to obtain the refund since they both are deceased and where do we find copies of their statements W-2 etc. to file
Hello. Thank you for this very useful article. I have a question that hopefully you can answer. I never filed my 1999 taxes. I do have my documents (W2’s) and I’m sure I would have received a refund (I have every single year). I’ve been thinking about filing and thought I’d do it myself. Would that be ok or do I need to go through an accountant? Also, say I don’t file my 1999 taxes and end up owing the government a lot of Taxes this year (took a distribution on a retirement account – TERRIBLE very bad idea, i now realize)… would I be able to set up some sort of payment plan to spread my payments over time? Thank you!!!
Sherry, you’ll need to use a software software program from 2005, or download the 2005 tax forms direct from the IRS Web site. Both software and forms are specific to each year since tax rates, deductions, and other information changes year from year.
Sandi, if their estate is going through probate, the executor of the estate will need to file returns for them. If there’s no probate, you’ll probably be able to file on behalf of your parents as their personal representative. You can obtain copies of their W2s by calling the IRS or mailing in Form 4506-T. See my article on how to dig up missing tax documents for details on how to go about doing this. And there’s additional tips in my article on deceased tax payers.
Daniel, I think you’ll be fine filing by yourself. Just download the forms from 1999 from the IRS web site. If your only income was wages and don’t have a lot of deductions, you’ll probably be just fine with a 1040-EZ or 1040-A form. If you have a refund from 1999, that refund is no longer refundable as you have three years to claim any refund money. And that refund money cannot be applied against what you owe in a different year.
It’s likely that the IRS could set up a payment plan even if you don’t file for 1999. In order to make that happen you need to ask the IRS agent to close out the 1999 tax year. However you might was well file for that year so that the IRS will be absolutely sure you don’t owe.
I need to file state taxes for 2001. Actually, I didn’t know how to go about it recieved copies of my return from irs but no state information was on them, and Indiana made me pay the largest sum possible for this year..around $500. Now I was wondering is there any possible way to still obtain this information and file an ammendment?
How do I find out what years I didnt file my taxes? i know of the last two but cant remember if i didnt file beyond that! Help!
Hello William,
I had a small business from September 2005 to August 2006. When the business was formed it was supposed to be a partnership but ended up being just me. In 2008 I had my taxes filed for the previous years. 2007 was filed first. My 2005 and 2006 business taxes for partnership were sent in as zeros explaining that it was a sole proprietorship instead and my personal taxes were then filed for 2005 and 2006. In 2005 I had no income and received no refund. I was employed in the end of 2006 and so I received a refund offseting my net loss. I sent in my amended 2007 return in September, and had to send in more paperwork in January of 2008. But today I received a bill in the mail from the IRS for interest and penalties accumlated for my 2006 taxes. It had the business address listed previously and it was returned to them, then they sent it to my home address which has been on all of my returns. I have not received my refund for my amended 2007 return. Can you please explain what my options are? I was under the impression that I wouldn’t owe for an interest or penalties
William, I just wanted to finally follow up on a previous post. I can happily say that it took about 8 months to get a check for back year’s taxes filed. I had to file 4 years in all. I received a big check which was bigger than I thought and 2 weeks later I received another check for around the same amount. Was I pleasantly surprised. Needless to say once it was in my hand, I wasn’t going to question it. Some advice I may offer is to call the IRS and ask where to mail each return as every year may have a different address to send to. This should help speed things up alittle. Thanks again and good luck to all.
David, thanks for the follow up. Those are some good tips.
I’m really concerned and nervous about my situation. I haven’t filed taxes in 8 years. I want to clear up the matter, but because of the fear of the consequences and my inability to pay what’s owed coupled with the penalties I haven’t filed. Will the IRS be willing to work out a payment plan with me? And what consequences might I expect?
I just filed 2004,05,06,07, and 2008. I have over $3500 coming back for 08 and would have had about $200 from 04. 05 thur 07 I had to pay the highest amount being about $400 which I sent a check for each year indivually. The others were only about $100. Will the IRS keep some of my money from last years refund for the interest due? Will I be in any trouble? The IRS never contacted me during any of this period.
Good morning: I am filing an extension, and do not know if my husband and I will be filing together or separately for 2008. Does it matter if I file an extension in both our names then file married filing separately? Thanks in advance for your help.
My sister in law confided in me that she got a letter from the IRS for not filing for taxes. She has always left the finaced and bill paying up to her husband who is my brother. She didn’t know why his name was not on the any of the paperwork. Do you think he filed his own and left her in the wind? Is there a way to find out. I’m sure she won’t get a straight answer out of him, and yes, they are still together and I’m not sure how long it has been since her’s was filed. Any advice would be welcome. Thank you!
Help..I let someone claim my kids because I owed student loan and was in active alcoholism I am now sober and want to take care of my taxes can I go back and claim them since it was illegal for them to claim them?
So if i’m understanding correctley 2002 and 2003 tax returns cannot get any refunds because they are past the 3yr mark?
Thanks, Chris
Anthony, yes the IRS is generally willing to set up a payment plan. The important thing is to file first, because the IRS won’t be able to set up an installment agreement until after all the tax returns have been processed.
Pam, the IRS will likely hold on to your refunds to cover any penalties and interest on the years for which you had balances due. After those penalties are paid off, the IRS will send the remainder of the refunds to you.
Michelle, that’s a good question. A jointly filed extension should still be valid even if you decide to file separately.
Jenn, there’s a couple of things I can think of. I did see a situation one time where the IRS thought the wife didn’t file a return. It turned out that she filed jointly with her husband. We asked the IRS to verify whether a joint return had been filed, and once they confirmed that, they marked her account as being filed for those years. So that’s one possibility. The other possibility, as you mentioned, is that the husband has been filing separately. In that case she should file her own, separate return for the years she needs to file. She may also want to consult with an experienced tax professional to review the IRS letters and provide any other advice.
Bridget T., while you were legally eligible to claim your kids as dependents, if you go back and correct your tax returns, you’ll get the other person in trouble with the IRS. He or she will not only have to pay back the tax, but the IRS will also add penalties and interest.
Hi, my brother has his own construction business and he has not filed his taxes since 2001. He business is not very successful and he is worried about fines, penelties, etc. He also doesn’t know where to start since his office was flooded last year and he pretty much lost everything regarding finances. where is a good point he can start.Obviously he can’t just file a 1040EZ…or can he??
Matt, what form(s) your dad will need to file is determined by the type of income and deductions he has, so it’s hard to make a general statement. In addition to his personal 1040 (or a shorter form), he will also need to file business returns. Which form applies depends on how his business is structured (as a corporation, partnership, or a sole proprietorship). The thing he should worry about first is making sure he has a complete set of financial documents as possible. For example, he may need to order bank statements, credit card statements, and so forth in order to accurately determine the income and expenses of his business.
Consulting with a licensed tax professional can help. In particular, the tax person might be able to give your dad advice on where to look for financial data, what types of documents to gather, and then liasion with the IRS and state agency to prevent any aggressive actions they might be planning.
I have moved alot over the last 5 years, and never received any W-2’s from my previous employers. I have never made more than 20,000/year, and have no investments/properties/assets. I was under the impression that because I have made less than 25,000/year that I probably won’t owe the IRS any money. Is this an accurate assumption? I intend to take care of this as soon as I can afford a tax professional’s assistance, but wanted to see if anyone could advise on what to expect. Thanks!
Thank you for answering my previous question. I have received my refund and taxes are all caught up. Now I’m wondering. Will I get a stimulas check for 2007 since all my taxes are paid and up to date? If so do I have to call the IRS and ask them for it?
I didn’t do taxes for 02, 03, 04, 05, 06, 07 and I got levy on wages, salary on me. What should I do? Thank you !
Sugar, whether you’ll owe tax or not depends on how much taxes were withheld from your paychecks, and how much your tax liability is to the government. If you’ve overpaid your tax, then you won’t owe. If the withholding don’t cover the tax, then you’ll owe. There’s really no way for me to make an assumption one way or the other, except to say that in the cases I see, most people have refunds.
One quick way to see if you might owe or not is to run a quick tax calculation and compare it against your withholding. For 2008, assuming you are unmarried and have no dependents, the federal tax would be 1,260. Compare this to your withholding for 2008 to see if you might be over or under this amount. Of course, this is a quick gauge only. Your actual tax situation will be different than this.
Pam, the stimulus payment should be included in your 2008 refund amount. If you didn’t calculate that on your 2008 tax return, then the IRS will send you a letter calculating the amount for you, and send you any remaining refunds. Your refunds may have been moved around to other years to cover any expected balances. Carefully review any letters from the IRS to be sure that the refunds went to the right places.
Roman, you should first file your tax returns. The IRS won’t remove a levy until the tax returns have been filed. Once the returns are filed, you will then be eligible to set up a payment plan (aka an installment agreement) for any balances that you owe. Once that payment plan is set up, the levy on your wages will be removed. All of this takes some time. If the levy is particularly harsh, you might be able to ask the IRS to remove the levy based on financial hardship. However the IRS will likely ask for a monthly budget, paystubs, and bank statements to verify that you qualify for this provision.
Thanks for the much valuable info on this site. I have a situation where I haven’t filed taxes since 1999! I was self-employed making about 30-40K, this went on til’ the end of 2007 and since then I have not worked. I becane a minister and receive a small monthly stipend. Should I be able to handle this myself and my CPA? or should I contact a “Tax Helpers” agency? My biggest fear is I’ll spend the rest of my life paying this off. Is it conceivable to think that I might of had a refund most of those years, because of dependents, and I might not owe the IRS that much? Thank you for your response.
Minister P., there’s a couple of things you can do. First, you’ll need to file any returns that haven’t been filed. That’s because the IRS refuses to set up payment arrangements unless all returns are filed. You may be eligible for any number of programs to help you pay the tax more affordably. You might be able to file the returns yourself, just download the tax forms from the tax forms archive at the IRS Web site. Since you were self-employed, you’ll need at minimum the Form 1040, Schedule C, and Schedule SE.
For your ministry income, you might look into whether you are eligible to be exempt from self-employment taxes.
While you (or your accountant) are working on the forms, you’ll want to the IRS to defer any attempts to collect taxes. Typically I ask for a 60-day hold, but sometimes the IRS will grant only 30 days or two weeks. The idea here is you need enough time free from the threat of imminent action by the IRS to focus on getting your tax returns done.
Next, you’ll want to review all the options for dealing with the tax payments. There’s five different ways to go about handling this. The key is taking a sober look at your current budget. (There’s a handy budget worksheet available here on About.com.) The idea is to take an honest look at how much you can really afford to pay the IRS each month. Once you have an idea about that, you can evaluate the various payment options. If it looks like you can pay this off within five years, your best bet will be an installment agreement. If you won’t be able to pay this off in five years, then I’d consider the partial installment agreement or the currently not collectible program. If you cannot pay off the taxes in five years but you do have some month for a lump sum payment, then I’d take a look at the offer in compromise program.
Most tax professionals should be competent enough to help you handle this situation, but some accountants are more experienced than others in these matters. So ask your friends or family for referrals. You’ll be in a better position to ask for advice and to gauge the quality of answers you are receiving by being informed about the choices available to you and knowing what the process looks like, and having a good idea of what you think the outcome might look like. Some of the ‘tax helper’ firms I see advertised on the internet want to focus exclusively on the offer in compromise, but in my experience that program is usually not the right solution for many people.
Hope these tips help.
Hi,I just recently filed my 2006 taxes in late April. I am due a refund. I checked off the box for direct deposit, will they still send a check in the mail? Whats the estimate wait time before im issued a refund? TIA
Valerie, the IRS does not send out refunds for prior years using direct deposit. So they will mail you a check instead. The standard processing times for prior year is 8 to 12 weeks, but I’ve seen processing times of 16 weeks or more during particularly busy periods. If you haven’t received your refund check in the mail in say 10 weeks, then call the IRS at 1-800-829-1040 to find out the status of your tax return.
Pam, you are welcome. The stimulus payment should be claimed on your 2008 tax return as an additional credit. If you didn’t already claim that on your 2008 return, the IRS will likely calculate the credit for you and send you a refund. If you haven’t received a letter to that effect from the IRS, then you could amend your 2008 return to claim what’s being called the recovery rebate credit.
I am writing for my mother. She is 59 years old and have not filed taxes in about 12-15 years. For the last 12 she has been on medical for a work related injury and currently receives disability and pension. How should she begin to fix this? The IRS has sent numerous letters. Thanks in advance.
Nya, your mom should consult with an experienced tax professional. You might want to go with her too, to make all her questions are answered. Basically, she will need to file. But usually there’s withholding on medical leave of absence payments. Some of her disability and pension benefits may even be non-taxable. In other words, I cannot really imagine her owing a lot of money. If anything she might have refunds. Of course, the real answer comes from looking at her documents and crunching the numbers. But this is what I suspect so far. The tax professional should help her gather all her relevant documents, prepare the returns, and develop a strategy for paying any taxes owed (if any), and develop a strategy for responding to the IRS’s letters. Hope this helps.
What if I filed wrong and received a lesser amount than an actual refund amount? How can I check back on past taxes. I had a friend recently who got back a refund for their 2003 tax after rechecking it.
So if i can’t get a refund because it’s been over 3 years– Then why do i owe anything? or if i ever owe anything and wait 3 years and tell them SORRY it’s been over 3 years!!!FAIR IS FAIR!!! Why do they think they can keep anyone’s refund? BASTERds
Hello,
I am a dual US/Spainsh citizen, born and raised in Spain. I worked (as an intern) in the US in 1999 for six months, after completing my university studies. But that was it. I came back to Spain and have never filed taxes ever since.
Talking to a US citizen I recently met in Madrid, he informed me that, to his knowledge, I should’ve been filing taxes all along. Furthermore, I started working as an independent contractor (self employed) a couple of years ago, and from what I’ve been researching, that would entail further tax-obligations.
My salary has never exceeded 60,000 USD (I believe that’s below the tax-credit limit).
Therefore, I would appreciate any information you could provide as to where I stand now, from a legal point of view. I’m starting the process to straighten things up, but am a bit uneasy about the subject.
Thank you, and best regards,
Santiago
Santiago, the US taxes its citizens on their worldwide income. However foreign wages are excluded from US taxes under the foreign earned income exclusion, up to $91,400 per year. (The dollar amount changes every year.) Thus you may not have any US tax liabilities, but you may want to file tax returns anyway just as a protective measure. There’s also a totalization agreement between the US and Spain for Social Security coverage, and this may provide you with an exemption from paying self-employment taxes in the US on your Spanish income. You may want to consult with a US tax accountant to make sure of any other provisions that may apply, such as any provisions in the US-Spain tax treaty.
My boyfried who moved to California in the middle of 2005 from Oklahoma, just told me he’s never filed taxes since he made the move!!! I’m terrified and would like to help him file his taxes. His biggest problem is not knowing how to claim a house he owns in Oklahoma nor he knows if he should report income on the savings he brought with him which helped him survive for the first four months he was unemployed. PLEASE HELP?!
My sis and I purchased a home for our mom in 2006. Only my sister is on the mortgage acct. but we have been splitting the interest ded’t. since ‘06 on our taxes. I was just audited this year. Will the IRS allow this deduction or should I run for the hills? I maintain proof of all my expenditures. Thanks
Only the person(s) who actually own the home and who are actually on the mortgage loan are entitled to the deductions. However, when being audited, the IRS will send you a list of questions they want to ask (and see backup documentation for). That questionaire (so to speak) limits the scope of their audit. If the mortgage questions aren’t on the list, then don’t bring it up.
Thanks William however the reason for the audit was the mortgage ded’t. that I took and the interest was only reported in my sisters name so they want to see my documentation to support my ded’t. Ever hear of IRS reg. sec. 1.163-1 that states ” a mortgage ded’t. cannot be denied if you are the legal or equitable owner of a property that secures the mortgage ? (IRS vs. Ana Usla 12/16/97)
Same situation as I and the Usla’s won… USTC presidence ?
Rick, you are quite right to refer to the equitable owner section of the Treasury Regulations. I discussed this briefly in a previous blog post. You’ll be able to win the audit if you can prove that your situation mirrors that of the cases you mentioned. There’s an excellent summary of the equitable owner provision over at the TaxAlmanac site.
I lost my job at the end of 2002 and collected unemployment for all 2003. I moved in with family have been living with them ever since. Have depleted my savings and maxed out my credit cards. I started going back to school in 2004 and continued on and off until now. I’ve worked small jobs here and there under the table So I haven’t filed a tax return since 2003. Will I have any problems filing future tax returns if I get a job or start a business?
Hi
I was working in Maryland on H1b visa and I moved back to my country in 2008 end. I filed my federal return but my W2 got lost and I wasn’t able to file my state return. Can you tell me whether I can file the same now and how penalities would be calculated on the same.
Is this a big blunder which one should never do or is ok..
Hi – My brother was taken to court for an outstanding debt and one of the conditions of his settlement is that his tax refunds are garnished. Now he has admitted to me that he hasn’t filed MI state returns in 13 years, and he’s panicking. He can’t afford any tax assistance and even though he wants to clear this up, I suspect he won’t follow through. I can try to walk him through the past filing process, but I’m wondering if he should just file his state tax for 2009 and see what happens. He’s worked for the same company for 14 years, and has always gotten refunds from federal (via EZ forms). Thoughts?
Hello William,
I have been living in Switzerland for the past 9 years (wife is Italian/Swiss so we decided to live here) and have not filed US taxes since I moved here. I have already sent an email to a local “tax helper” who does US taxes. Besides that I understand I won’t have too much to worry about (hopefully). I only recently learned from an american colleague that I was still obliged to file.
I have a trip planned for December to see my folks in the US. I wonder though if after I have filed how long will it take to get to the Customs agents at the airports and is there a chance I will be arrested? I also recently renewed my passport (which I received after only 9 days)…I think I can assume correctly that the IRS was alerted or not? I am also relatively certain that I will owe nothing or at least very little to the IRS…fingers crossed!
Thank you in advance for taking the time to read/respond!
Magoo