Back Taxes

Joe Mastriano, a CPA with over 25 years of experience talks about back taxes…

If you have late returns, the IRS can and will use the delinquent returns against you in many ways. For example, if you have a refund coming to you, and you file more than 3 years past the due date (including valid extensions) most of the time, the IRS will keep the refund. The IRS will not even offset the refund against a old tax liability from another year. If you are in a “binding” installment agreement to pay a prior tax liability, or in an uncollectible status, filing back taxes or the paying of any tax late will void the agreement. This will cause all money to become due immediately. Often when an agreement is in default, taxpayers find out via a levy on their bank account or paycheck. Even worse, taxpayers may find out through a levy on their spouses paycheck or a lien on their house and other property!

Taxpayers are not always notified first about settling their past due taxes. Sometimes, even the representative was not notified! The IRS may have filed a return for you, charged you with the tax, and is now about to take collection action against you. You probably are not aware of it yet. You are about to find out the hard way! Even if you like the way they prepared the old or delinquent returns (most likely because they charged you with less back taxes than you thought it was going to be) you still need to sign the return. Otherwise, the statute of limitations on assessment does not run. This means that the IRS can audit you and/or charge you with additional taxes at any future time. Normally they have three years from the time you send a return in.

Even if for some reason you are not required to file, you should file anyway. This would protect you and your accountant from having to prove that you were not required to file many years after your IRS past due returns were due!