Taxpayer Hasn't Filed for 10 Years

[zeros]

A prospective client contacted me and mentioned he owed state taxes and hasn't filed for about 10 years, Probably owes Federal now also. From my experience, the taxpayer usually adjusts his W-4 so that he owes instead of having refunds due. My question though, is I thought I heard or read somewhere that you only have to go back 5 years? Anybody else heard that?

[ChEAr$]

Add one

A prospective client contacted me and mentioned he owed state taxes and hasn't filed for about 10 years, Probably owes Federal now also. From my experience, the taxpayer usually adjusts his W-4 so that he owes instead of having refunds due. My question though, is I thought I heard or read somewhere that you only have to go back 5 years? Anybody else heard that?

Six years' worth is what IRS expects. Your state may be different of course.

[erchess]

Wow

I didn't know the IRS could only go back six years when pursuing a non filer. Harlan are you sure about that?

[ChEAr$]

Yep

I didn't know the IRS could only go back six years when pursuing a non filer. Harlan are you sure about that?

Quite sure.

[solomon]

From Reg. 301.6501(c)-1

(c) No return. In the case of a failure to file a return, the tax may be assessed, or a proceeding in court for the collection of such tax may be begun without assessment, at any time after the date prescribed for filing the return.

[jimmcg]

Statute of limitations does not run until the return is filed thus they have the authority to go back as far as they want. Whether they do or not depends upon their current policy and/or assessment as to collectability.

[RLymanC]

Back Taxes

California is so broke they are searching years and years back. Just had a client that failed to file 1989 CA tax return. State say's you owe me $24,347.

Filed 1989 taxes, client lost a $89.00 refund. OH WELL!!!!!

[Black Bart]

Harlan,

Six years' worth is what IRS expects. Your state may be different of course.

I believe the deal about a six year limit pertains to years that have already been filed -- that's the one where returns that are ordinarily open to audit for three years can be checked for six years if the understatement of tax is more than 25% of...um...income (isn't it?). However, as a practical matter I think you're right because I don't recall seeing any demands for federal returns older than six years and, as you say, states are different in that they frequently ask for ten-year old stuff.

[Black Bart]

I guess

if the guy wanted to "catch up" then I'd go all the way back to square one (it's money to be made), but, Lordy, it would be some trouble to do -- I've never gone back more than five or six years and don't think I even have a program past '99. Maybe get some IRS website forms/rules and do 'em by hand (ah'm gonna go right out and check to see if that's still legal).

P.S. Whatever you do, don't do them all at once -- fix maybe two at a time and collect as you go or you may never collect. There's a good reason that person did not file and their newfound "religion" frequently doesn't last as long as it takes to get something like this done (maybe months -- maybe a year). Many get tired of foolin' with it (no refunds involved) or IRS stops writing; then they just kinda fade away and you never hear from 'em again (been there -- done that).

[JohnH]

Good advice Bart. EIther pay as you go or get a hefty retainer.

I was also told recently by a tax attorney that it's helpful to take some other steps.
1) mail them in separate envelopes (to avoid a clerk absent-mindedly stapling two years together, which could easliy happen if they are in the same envelope);
2) Mail them on separate days (to decrease the possibility of the same person handling more than one year). and
3) Mail them out of order (ie send 2003, then 2001,then 2004, then 2002, etc).

The idea isn't to put anything over on anyone, but rather to be sure that all years get credited in the system with the least possibility of an adminstrative foul-up compounding the problem. After all, in the same manner that this is out of the ordinary for the preparer, it's also out of the ordinary for IRS.

[AuditorTurnedGood]

I'm also in the middle

of filing for an S-Corp owner/Officer back to 2001. Thanks to all of you, I have learned to get paid up front on non-filers. I would actually disagree, however, with sending them in out of order. The IRS's systems, as well as the ones here in MN, are not the most advanced things on earth. By sending them in in order of years, you have the greatest chance to have all the possible "carry forwards" like capital losses or, dare to dream, any estimates or overpayments, credited in the proper order. The hard thing to remember is everyone really does have an account with the IRS, and moving those debits and credits back and forth as you file out of order is going to, and I speak from experience here, cause problems. It would be a bit like filing your 09 taxes while your 08 are still on extension. Thoughts?

[JohnH]

I'm glad you chimed in on this.
I place lots of trust in this particular attorney's advice, but nobody is perfect and I was hoping to hear from someone who has been on the inside concerning the issue of filing them out of order. It makes sense if there are year-over-year issues to deal with such as loss carryforwards or application of overpayments to estimates. What about situations in which none of those issues are present? For example, each year has a balance due or small refund and nothing that crosses over?

[AuditorTurnedGood]

I'd say

still do them in order. If nothing else, it will make your job a little easier, but it always looked good to me when I was auditing non-filers, and I was told last week by someone in MN Revenue collections, to start with the oldest first. Those are also the ones which are most likely to have had CFR's done, be accuring penalty and interest, and have the greatest possibility of causing levy/lien/suspension of professional license (here in MN). The newer ones are usually not at the top of the government's list. Plus, they usually take the longest, because the client has little to no data, and you end up having to reconstruct from IRS and others. I'm not sure I could give you my W2's from 1999 (all though I'm sure I have the return somewhere). Best of luck, though, to any of you working long non-filer clients. Non-filers are a tough group (but I charge through the nose for them, so I can't say I don't like them.)

[ChEAr$]

it's from the horse's mouth;

I believe the deal about a six year limit pertains to years that have already been filed -- that's the one where returns that are ordinarily open to audit for three years can be checked for six years if the understatement of tax is more than 25% of...um...income (isn't it?). However, as a practical matter I think you're right because I don't recall seeing any demands for federal returns older than six years and, as you say, states are different in that they frequently ask for ten-year old stuff.

I think; or the other end.

anyway, call the IRS sometime and ask them how many years you need to prepare for
a nonfiler and see what they say.

now bear in mind the OP's question relates to a non filer, be definition one who hasn't filed a return in
many a year AND one whom IRS doesn't know about, i.e. no SFR's filed for back in the 1990's!

[New York Enrolled Agent]

ChEAr$ is correct.

The IRM at §4.12.1.3 addresses Policy Statement P-5-130. The enforcement period for non-filers (except in rare cases where managerial approval is required) is six years. Clearly, the states may differ.