Unfiled Tax Returns

A number of taxpayers get caught up in a never-ending cycle of not filing tax returns. We sometimes see people who have not filed tax returns for 5 or more years.  Frequently, this becomes a great stress factor, seemingly immobilizing a person in all tax matters.

We have seen different reasons for not filing. Sometimes people fall behind because they had illnesses, or they cared for loved ones 24/7 and could not get to their own tax matters.

In other cases, we see that extreme procrastination leads to not filing year after year.  Interestingly, in some cases the root cause of such procrastination is generally some sort of attention deficit disorder (ADD, ADHD).

While everyone procrastinates to a certain degree, for ADD/ADHD individuals, the procrastination is chronic and disruptive. It costs people grades in school & careers, it costs jobs & relationships and creates unpleasant problems with organizations such as the IRS.

If a taxpayer fails to file a return, the IRS prepares what is known as an “SFR” (Substitute for Return).  The SFR is a balance due that is created by the IRS for the taxpayer using the information the IRS has at its disposal, usually from W-2’s and 1099 forms received from companies that paid you.  The IRS can also create a balance due from your bank deposits.

Of course, this form of tax balance due creation allows for zero deductions and may grossly exaggerate your tax liability.  Example: If you do not file a tax return, are in business and have sales revenue of $300,000, you will be taxed on the $300,000 with no allowance for expenses, even if your business made no money that year. In this example, the IRS could claim that you owe over $100,000 in taxes, interest and penalties.

These problems are usually solvable by meeting with the IRS and negotiating reasonable deductions in order to achieve the lowest tax possible.

Note: The period of time the IRS has to create additional tax due does not begin to run until the return is actually filed.  Returns that are filed on time, however, are generally subject to a three year statute, which gives the IRS 3 years to audit and assess additional taxes.   Example: If you filed your 2005 return in April 2006, the IRS usually has until April 2009 to assess additional taxes. In May 2009 the IRS is generally barred from assessing additional taxes for the 2005 tax year.

Our staff stays current with the changing tax code and regulations in order to achieve the lowest tax allowed by law.  Our tax professionals will evaluate the specifics of your case and create a plan to bring you current with your tax filing obligations.