File that late tax return before the IRS does
In a typical year, nearly 12 million individuals who were required to file a tax return do not file. The IRS can pursue those late tax returns, meaning stiff consequences and increasing complications for past-due tax return filers. Penalties and the loss of a refund may be well-known outcomes, but the IRS can even file a substitute return for someone – and when the IRS does, the return doesn’t include any credits or deductions in the taxpayer’s favor.
If the IRS completes a substitute return for a taxpayer, the taxpayer will face the least favorable tax outcome, in addition to whatever failure-to-file and failure-to-pay penalties the taxpayer owes. Within 30 days of receiving an IRS notice about the substitute return, the taxpayer must do one of three things:
- Submit a completed and signed tax return.
- Agree to the substitute return.
- Provide a statement explaining why he or she is not required to file.
To file a past-due tax return and get back in good standing with the IRS, taxpayers should gather the necessary information, complete and file their past-due returns, and follow up with the IRS to ensure correct processing.
Gather information needed to file past-due returns.
Wage and income transcripts, which taxpayers may request from the IRS, can help taxpayers identify the forms they will need to prepare their return. An account transcript, which can also be requested from the IRS, will show any estimated tax payments or other credits posted to the taxpayer’s account that tax year.
Taxpayers may need other information that isn’t on file with the IRS, such as self-employment income and expenses, investment income, basis in assets that were sold, and other income information or expense records needed to claim deductions and credits. To establish income and expenses, taxpayers should check their bank and credit card statements, statements from charities they’ve contributed to or records from their lenders.
Complete the return and submit it to the appropriate IRS unit.
Tax filers completing past-due returns may need to take additional steps to minimize the consequences of filing late. For example, if they need additional time to locate and track down their records to file their late return, they should notify the IRS. The IRS may hold off on enforcement actions like issuing liens and levies. Or, if taxpayers can’t pay the full amount, requesting a payment arrangement with the filed return could get them back into compliance and save them some penalties. And if they already face a penalty, they may be eligible for relief.
Finally, some late-filed returns may need special processing, like date-stamping or filing with an IRS compliance unit.
Monitor return-processing and other compliance activities.
Obtaining proof of filing will help taxpayers if the IRS doesn’t process their return and issues collection notices, liens or levies. If the IRS had already taken any of those actions, taxpayers should follow up after their return has been processed to ensure that the compliance actions are closed with no matters outstanding.
Filing a late return can be a daunting task, but taxpayers can minimize the damage by completing and filing an accurate return as soon as possible. Waiting until the IRS files a substitute return for them will only complicate matters further – and add to their tax bill. If taxpayers are unsure of how to file a late return, what documents are needed, or how to minimize penalties, their local tax expert can help them get the best possible outcome and return to good standing with the IRS.
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