9 Tips for Dealing With a Delinquent Tax Return

Learn how to tackle past due returns or back taxes.

You, like most people, probably don’t relish preparing your annual income tax returns, but what happens if you don’t file your taxes? “The best advice we can give is to not ignore the problem,” said Michael Raanan, MBA, EA, owner of Landmark Tax Group and former IRS agent.

If you are delinquent, take control of your situation by protecting your rights and coming up with a plan. A tax professional can be a valuable resource to help you resolve the situation in a timely and affordable manner.

No matter how overdue your returns are and no matter what your excuse is, you must file your taxes. Here are nine tips for dealing with unfiled tax returns.

1. Get Help From a Licensed Tax Professional

Receiving a notice from the IRS would raise anyone’s blood pressure. Before you jump into action, contact a qualified tax professional for advice on how to resolve unfiled taxes. “You are entitled to tax representation in any matter with the IRS, and you should never try to handle any tax issues without proper representation,” said Raanan.

If the IRS has already started calling you to collect, contact the IRS and a tax professional immediately. “You can ask the IRS to briefly halt any collection activities until you have secured tax representation,” said Raanan. “Do not hesitate to do so, as a long delay will only make things worse.”

Find Out: Do I Need a Tax Attorney?

2. Understand Your Rights and Options

Although you shouldn’t delay tackling your tax problems, you need to know your legal rights before taking action. “Do not let the IRS intimidate you into thinking you have no option but to immediately pay the amount of your back taxes in full,” said Raanan. “IRS agents can be quite threatening, so it is important you remain calm and collected and understand your options.”

A licensed tax professional can help you understand your rights and teach you how to file back taxes. You might have more possibilities and payment options than you think.

3. File Even If You Can’t Pay

No matter why you’re delayed, file taxes as soon as possible. Unfortunately, the failure-to-file penalty can be ten times as much as the penalty for failing to pay.

“The penalty for late filing is 5 percent of the unpaid taxes for each month that the tax return is late,” said Josh Zimmelman, owner of Westwood Tax & Consulting, a New York-based accounting firm. “The penalty for late payment is 0.5 percent of your unpaid taxes for each month that the payment is late,” he said.

Each day you wait to file and pay, the worse your problem will become. Make sure you file in a timely manner so the penalties don’t skyrocket.

4. Request an Extension of Time

Individual taxpayers might get an extension of time to file tax returns by up to six months — or longer if you’re located overseas. To request an extension, file Form 4868, which extends the filing deadline but not the payment deadline.

If you pay at least 90 percent of the amount due by the tax deadline, then you might not be liable for the failure-to-pay tax penalty. However, this relief only applies if you pay the outstanding balance by your extension date. Otherwise, you’ll owe interest extending back to the original due date.

5. Set Up an Installment Agreement

The IRS might be willing to set up a monthly payment agreement if you owe less than $50,000 in combined tax, penalties and interest, and you’ve filed all your required returns. Short-term installment agreements might be available for balances up to $100,000.

Use the IRS online payment application to find out whether an installment agreement is available for your situation.

Make sure you stick to your repayment schedule. “In the event that you miss a required IRS deadline, it has the right to revoke the payment arrangement and restart the collection process,” said Raanan.

6. Pay By Credit Card

Although you don’t want to increase your personal debt in addition to your taxes due, paying by credit card might be a solution to help you make payment in full.

Zimmelman agrees: “Even though you might end up paying interest charges on your credit card balance, depending on your [credit card interest] rate, that might still be cheaper than paying the IRS’s fines and interest charges,” he said.

Taxes paid by credit card go through a commercial payment processor, not the IRS, and will incur an added fee that might be tax deductible. Check the IRS’s website for a list of processors.

Find Out: Is Taking Out a Loan to Pay the IRS a Good Idea?

7. Make an Offer in Compromise

If all else fails, you might be able to negotiate with the IRS. “If you can prove that you cannot afford to pay your taxes, the IRS may be willing to make a compromise and reduce your balance,” said Zimmelman.

The IRS will consider your entire financial situation, including your income, expenses, assets and ability to pay. You might be approved for a lump sum or periodic payments. In either case, you must have filed all required returns unless you have an extension for the current tax year.

Check out the IRS’s online offer in Compromise Pre-Qualifier tool to see if you might be eligible.

8.  Communicate and Keep Records

To ensure delivery of your communications, send everything to the IRS via certified or registered mail. For registered mail, the date of registration serves as the postmark date. Save your receipt for proof that the return was delivered.

If you opt to use certified mail, make sure a postal employee postmarks your receipt. The date of the receipt will serve as the postmark date. Again, keep your receipt for proof of delivery.

9.  Don’t Dig a Deeper Hole

Don’t let history repeat itself and dig an even deeper hole of tax penalties and debt by missing the yearly tax deadline. Also, don’t make the mistake of thinking you shouldn’t file the current year’s taxes because you failed to file last year. The IRS will hold you responsible for each year you don’t file.

Most importantly, never ignore the IRS: “If you do not take heed to any letters or calls you may be receiving from the IRS in an attempt to collect back taxes, it could lead to serious consequences such as bank levies, tax liens and wage garnishments,” Raanan said.

Check Out: 10 Most Common IRS Tax Forms Explained

Resolve Your Tax Issues Now

Tax returns serve a variety of purposes; you might need them to apply for student financial aid, a mortgage, or a personal or business loan. In addition, your Social Security, disability and Medicare benefits are based on your reported earnings.

Fortunately, you have options when your delinquent taxes become a problem or if you are facing a tax audit. Tax information is tricky, however, and the repercussions for failing to file or pay can be substantial. Act quickly.

Valerie Rind contributed to the reporting for this article.