If you are delinquent on your taxes, you want to make sure you handle the situation the right way to keep out of trouble with the Internal Revenue Service. Here’s what you need to know about how to file delinquent tax returns.
What Are Delinquent Tax Returns?
Tax returns are considered delinquent when a taxpayer fails to file them on time. Failure to do so results in penalties—the IRS charges 5% of the tax amount owed for every month your tax return is late or unfiled.
Apart from fees and interest charges, having past due returns results in costly consequences:
- Loss of tax refunds
- Reduced Social Security benefits
- Wage garnishment
- Ineligibility for new credit, mortgage, business loans, or student loans
- Criminal prosecution
The IRS will eventually file a substitute tax return or SFR (substitute for return) for you; however, it will not reflect any credits, deductions, and exemptions you may be entitled to. You could end up with a higher tax liability than had you or a professional prepared it.
How to File Delinquent Tax Returns
The IRS can go back up to six years to check and enforce compliance. You can file six years of past due returns to remain in good standing with the IRS, but if you want to claim refunds, you can only do so with delinquent tax returns filed within three years.
The IRS will send a Notice of Deficiency CP3219N detailing the tax assessment. You will have 90 days to file the back tax return yourself or file a petition in Tax Court. They’ll prepare an SFR with tax obligations you must settle, but you can still file yours to take advantage of any exemptions or credits you may qualify for.
When filing your past due returns:
- Know which years of returns you should file.
- Submit form 4506-T, or Request for Transcript of Tax Return, to have copies of tax documents from the IRS. You may contact your employer to have these sent to you.
- Have forms W-2 and 1099, plus specific tax returns, for the year in question.
- Fill out the back tax returns or seek help from a tax specialist. If you want to know whether you can e-file delinquent tax returns, the answer is that you can, but only through certain tax services. It’s best to mail the completed forms to the IRS to file them officially.
How to Handle Delinquent Tax Returns
As you file back tax returns, you do not have to pay the amount owed immediately. The IRS will assess your tax obligation, for which you will arrange payment. There are several options to settle the tax amount owed:
- Arrange a payment plan or settle in installments
- Offer a compromise with the amount reduced but paid in full, either a lump sum or staggered
- Seek an extension to pay until a taxpayer’s financial situation improves, especially those suffering from hardship
With late returns, you can also obtain relief from penalties through penalty abatement. There are two ways to request it: first-time abatement (FTA) and reasonable cause. You can qualify for FTA if you have:
- No penalties for three years before the unfiled tax year
- Filed all required returns or requested filing extension on such returns
- Made collection arrangements for tax debt owed or fully paid these
If you are ineligible under FTA, you can request penalty reduction or complete waiver by citing unforeseen circumstances outside your control as reasonable causes. For instance, your spouse may have refused to file returns and pay their taxes, causing you to have significant tax obligations not of your doing. You would compile this information in an abatement letter.
Tax Help MD Can Help File Your Delinquent Tax Returns
Back tax returns will have significant repercussions on your finances, living situation, and future. Unfortunately, knowing how to file delinquent tax returns can be confusing, leading to costly errors.
The professionals at TaxHelp MD can make the process easier and simpler for you. They will gather paperwork and file past due returns to get you back on track and help you seek penalty abatement if you qualify for one. Schedule an appointment today for the help you need.