10 Years of Returns to File

[rtsietsema]

I have a new 30 year old client who has never filed a tax return, ever! He has never been contacted by the IRS or any State, but wants to get things straightened out before they do. Here's the situation from 2011 forward:

He was a student in college for 2011, 2012, and 2013. Was not claimed by parents as a dependent, no one claimed the AOC. He was employed as well, no more $10,000 in any year. For 2014 through 2020 he had significant income, but was misled by people who claimed he didn't need to file or pay taxes, so withholding was short in every year. He owes money for all years 2014 - 2019. Only saving grace for 2020 is the stimulus checks he didn't receive, which the IRS might hold as things work through the system.

Here's the question: I've heard of a strategy used in this situation to file all returns together, but separated, hoping the IRS will process them in order. For each tax year with a refund, since the IRS won't pay the old refunds, mark the refund to apply toward each following tax year. With the missed AOC and lower income in the early years, that strategy, if it is allowed and works, would negate the balances due in 2014, 2015, 2016, 2017 and part of 2018. This would reduce the penalties he can expect as well? He still would be on the hook for some taxes, but not as much.

Does anyone have experience or advice with this tactic, or do you foresee problems?

Thanks

[FEDUKE404]

I would tread carefully in this mine field, especially if some Sch Cs were involved along the way.
As for being able to offset ALL refunds/balances due, I doubt if that will work. For good or bad, my guess is some of the older years are simply lost. Once the IRS processes a valid return, I doubt if they will deal with any "offsets" etc for the other open years.
I would advise a substantial up-front client payment before you go too deep into the woods. . .

[TaxGuyBill]

He was a student in college for 2011, 2012, and 2013. Was not claimed by parents as a dependent, no one claimed the AOC. He was employed as well, no more $10,000 in any year.

Here's the question: I've heard of a strategy used in this situation to file all returns together, but separated, hoping the IRS will process them in order. For each tax year with a refund, since the IRS won't pay the old refunds, mark the refund to apply toward each following tax year.

1) Just a reminder that (a) just because parents did not claim him as a dependent does not mean that he can claim his own exemption for those years if he qualifies as a dependent and (b) It seems unlikely he would qualify for the Refundable portion of the American Opportunity Credit.

2) No, that is not supposed to work. The rules say the refund is not valid, even if it is applied to the next year. With that being said, there ARE rumors that it has occasionally worked before, perhaps due to the IRS processing it incorrectly. So I suppose you can TRY it, but expect it to be denied.

[spanel]

I would also Call with POA and ask what years returns need to be filed.

Chris

[Anarchrist]

Anything older than three years won't get credited forward. Unless, as TGB states, they make a mistake, but they'd have to make the same unlikely mistake three times.

Only file 6 years. He can skip 14. If he procrastinates another 6 months he can skip 15.