Have not filed taxes in years? Here is where to start

How many years of unfiled returns do I have to file?

The law has no blanket six-year rule. The six years come from an IRS enforcement policy: the IRS generally does not pursue delinquent returns that are more than six years old, and going further back, or accepting fewer years, takes a manager's approval based on the facts, such as your compliance history, the amounts at stake and whether they can be collected. The duty to file does not expire for a year in which you were required to file, and the IRS can assess tax for an unfiled year at any time. So the practical first step is to confirm which years must be filed based on your filing requirements, IRS records, and any notices received.

Refunds run on a different clock. A refund generally has to be claimed within three years of the return's due date, with a lookback that depends on when the tax was paid, on extensions and on any relief that applies, so a year that would have produced a refund can be lost after that and cannot then be used to offset another year's balance.

What is a substitute for return, and why is the balance often too high?

For years where it received W-2s or 1099s, the IRS may have prepared a substitute for return. It is built from the income reported to the IRS, and it may omit deductions, credits, or other information that would reduce the tax, such as your actual filing status, dependents, business expenses or the cost basis of investments you sold. The balance it produces is therefore often higher than a complete return would show. That assessed balance accrues penalties and interest and can be collected like any other. Filing your own return for that year asks the IRS to replace the substitute with the correct figures, through a process called audit reconsideration. The IRS reviews the return, and may examine it, before it adjusts the account.

Step one: the transcripts

Before preparing anything, get the wage and income transcripts for each missing year. They list the W-2s, 1099s, 1098s and other forms the IRS has on file under your Social Security number, which may not be every form that was issued to you. They are available through an online IRS account, or a representative can pull them under a signed authorization. They show what the IRS already has on file, which reduces surprises.

Step two: rebuild what the transcripts do not show

Income that was never reported on a 1099, business expenses, rental figures and the cost basis of some investments are not on the transcripts. Bank statements, merchant statements and old invoices rebuild them. For a business, this usually means a bookkeeping cleanup first, because a return built on guesses creates the next problem.

Step three: file, in the right order

File promptly, following the instructions on each notice and any urgent deadline it sets, rather than waiting until every year is ready. Years with a substitute return go to the unit handling the reconsideration, with a note saying so. Years with a balance due are filed even when you cannot pay, because a filed return is what opens the door to a payment plan, an offer in compromise and the other resolution options.

Step four: the balance

Once the real balances are assessed, the normal tools apply: a payment plan, an offer in compromise if you qualify, hardship status, and penalty relief where it applies, which after several unfiled years usually means reasonable cause. Florida has no personal income tax, so there is no Florida personal income tax return to catch up. Businesses may have sales tax or reemployment tax filings with the Florida Department of Revenue to bring current, and other states have their own filing requirements.

Every situation is different and results depend on the facts of each case. This guide is general information, not advice on your file. The complimentary 15-minute introductory call is where your facts come in.