File Back Tax Returns
Failing to file back tax returns on time is the probably the easiest way to end up in trouble with the IRS. Simply not filing a return at all is far, far more serious of an offense than filing late. Even if you can not pay your IRS tax debt on time, you still need to file your tax return.
The penalties the IRS charges you for filing back taxes late are up to 9 times higher than the penalties for paying late. Keep in mind, the IRS considers non-filing to be a "criminal offense".
The IRS uses a series of sophisticated techniques to hunt down late filers. The most common way, is a method called computer matching. The IRS gets a copy of every W-2, 1099, 1098, and other tax documents that are sent to taxpayers each and every year. Once a tax filing deadline is well past, the IRS runs the computer program to find taxpayers who had income but didn't file a return.
When the IRS finds a taxpayer that owes money, but hasn't reported it, they will first try and contact them at the last known address on file. If they don't hear back, then they generally will prepare a return for the taxpayer. This return is called an SFR (Substitute Filed Return) and is based on the information they have on file. Generally this information will include some or all of your income, and little to no deductions. After the SFR has been filed, the IRS will send the taxpayer a bill, and begin the collections process (see IRS tax levies, IRS wage garnishment, and IRS tax liens).
It is definitely in the taxpayer's best interest to file their own back tax returns. If you owe back taxes, and haven't filed back tax returns, then two of the biggest reasons why you need to are: it reduces the amount the IRS thinks you owe them down to the amount you really owe them, and it allows you to set up a payment plan with the IRS. In fact, the IRS will not enter into any type of payment plan with you at all until all back tax returns are filed.
If you are currently faced with an IRS Audit or owe the IRS back taxes, you should think very strongly about consulting with a tax professional today. To speak directly with a tax advisor at our firm, call us at (888) 918-8121. The call is free, the consultation is free, and you are under no obligation to hire us.