Taxes 2023: How To Get Back on Track With the IRS If You Need To File Past Returns
For one reason or another, you may have failed to file tax returns for past years. If you’re in this boat, don’t panic — the best thing to do is to play catch-up as soon as possible.
Here’s what to know about getting back on track with your taxes.
The IRS Accepts Returns for the Previous 6 Years — and Sometimes More
It’s actually not uncommon to fall behind on your returns, and you are able to file for multiple years at once.
“We file multiple years all the time,” said Morris Armstrong, founder and owner at Morris Armstrong EA LLC. “Generally, the IRS is looking for your last six years of tax returns, although that could be extended if your situation warrants it.”
The three most current years can be electronically filed, but older ones will need to be mailed in, Armstrong said.
You May Not Get Tax Refunds From Previous Tax Years
Be forewarned that if the IRS owes you money from previous years, you may not get it — and if you do, expect there to be a delay.
“If you are owed a refund on the recent returns, it will be held up due to the non-filing status,” Armstrong said. “There is a statute of limitations on refunds, which is three years from the due date. The 2019 tax return due date was changed to July 15, 2020, and so the 2019 return must be filed by July 15, 2023, in order to get a refund. Sadly, there is no similar statute if you owe money.”
On the Plus Side, You May Not Have To Pay Any Penalties
Many late filers may be wary about filing for previous years out of fear they will have to pay penalty fees to the IRS. The good news is that this won’t always be the case.
“[If] you file six returns and they all show that you are due a refund, there is no penalty for late filing because the penalty is calculated on the balance due,” Armstrong said.
However, if you do owe the IRS money for past years, you will have to pay a penalty for filing late, plus interest on the money you owe.
“The failure-to-file penalty is steep at 5% per month, but it is capped at 25%,” Armstrong said. “[In the] same scenario, [if] the oldest return shows a balance due of $1,000, you would be assessed $250 for the failure to file, plus a penalty on failure to pay of [0.5%] — $60 per year or $360 for the six years.”
It’s Possible To Get Penalty Fees Waived
There are a few ways to get out of paying penalty fees if you do owe the IRS money for previous years. One way is known as a first-time abatement.
“If you had been a compliant taxpayer for the preceding three years, you may qualify for a first-time abatement,” Armstrong said. “It is given for being a good citizen.”
If you don’t qualify for the first-time abatement, you may be able to get your penalty fees waived if you can prove a reasonable cause for your failure to file.
“Reasonable cause for that time period may be very difficult to justify,” Armstrong said. “Perhaps a major family crisis, prolonged depression or confinement might be mitigating, but the dog ate my records would not.”
To claim a reasonable cause, you will need to file Form 843 to request an abatement of penalties and interest.
“Your reasons need to be outstanding, and relevant documentation and proof must be provided,” said Rob Burnette, professional tax preparer at Outlook Financial Center in Troy, Ohio.
No Matter What the Circumstances, It’s Important To File Past Year Returns
If you won’t be getting money back — or if you know you owe the IRS money — you may be tempted to remain delinquent on your past returns. But it’s always the best move to get squared away with the IRS as soon as possible.
“The IRS will look more favorably on taxpayers trying to get caught up than one they find and process first,” Burnette said. “I have found the vast majority of IRS employees involved in audits and examinations to be professional and interested in getting to an outcome that both parties can implement.”
Burnette has experienced this firsthand.
“It is likely the IRS will eventually find you,” he said. “Expect the IRS to be aggressive and potentially intimidating with these kinds of cases, and engage the services of a tax professional to work with you. I worked with a taxpayer that hadn’t filed returns for 10 years. With calmness and relevant research, we were able to avoid a nasty confrontation and came to a settlement well below the initial IRS position that everyone could work with.”
It’s also a good idea to get current on your tax returns because you may find yourself in specific circumstances where this is necessary. Armstrong provided a few examples: “(1) You cannot have taxes discharged in bankruptcy unless they are filed and filed within time limits. (2) You may need to show a history of compliance for a professional license. (3) Your love interest may require it. While a married person is not responsible for your tax debts incurred before marriage, their refund may be taken on a joint return unless certain forms are filed.”
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