Prior Year Returns

[Roseman]

I had someone call me who was referred by another client regarding filing back tax returns. He had not filed since 2000 and wanted to get caught up. Looking at his information, in most of the years 2001-2005 he has about a net $5K refund coming. But I understand I can only go back to 2006 as the other years are not eligible. All these returns are not amended returns, they have never been filed. Is there any reason to file these if a refund but I understand I have to file if a balance due the IRS and they will invoice the taxpayer rather than paying with the return? I have never filed as many prior years as this that are closed. Any suggestions would be greatly appreciated. Thanks

[joanmcq]

You should file 6 back years, even if a refund was due. I recently had luck in which small refunds from as early as 2003 were applied to later years' balances, even though usually this is not allowed.

For some reason the letter detailing the 2003 refund being applied to the 2007 return seems to have gotten stuck in the system, and I get about a letter a week regarding the refund application. A small forest has been shredded because of this!

[DaveO]

Closing the statute on the earlier years is reason enough to file.

[OtisMozzetti]

If the return has never yet been filed, there is no statute of limitations on the IRS assessing additional tax. Without additional information about exemptions, credits, or deductions, it might appear to the IRS that there could be a balance due for those prior years. The point it that the IRS might hold up payment of any refunds on more recent years unless they see a return filed for certain years from way back.

As a practical matter, one of my colleagues is now dealing with a client who did not file for the past 10 years. The IRS was readily willing to supply income transcripts for only 6 years. I don't know how official the guidance was, but during one phone call the taxpayer and my colleague were advised to just concentrate on getting the most recent 6 years filed. The balances that might have been due 7, 8, 9, and 10 years ago were small (<$500)amounts; but with added penalties and interest the amount owed could add up considerably.

[New York Enrolled Agent]

The IRS was readily willing to supply income transcripts for only 6 years. I don't know how official the guidance was, but during one phone call the taxpayer and my colleague were advised to just concentrate on getting the most recent 6 years filed.

From the IRM

A snip from policy statement 5-133

Normally, application of the above criteria will result in enforcement of delinquency procedures for not more than six (6) years. Enforcement beyond such period will not be undertaken without prior managerial approval. Also, if delinquency procedures are not to be enforced for the full six year period of delinquency, prior managerial approval must be secured.