Sometimes, it can be difficult to keep up with the timely filing of tax returns. This could be due to an inability to obtain the needed documents, a natural disaster that prevented you from working on your tax return, or other unforeseen circumstances. As a result, you have tax returns past due.
Technically, the Internal Revenue Service (IRS) doesn’t impose a time frame on how long you must file late tax returns. However, note that there are consequences for filing tax returns beyond the prescribed period such as penalties and interest. Hence, you must file all tax returns within the allowable time to avoid problems down the line.
So, how far back can you file taxes? In the following section, we will discuss everything you need to know as a taxpayer regarding the tax return filing period and other relevant issues.
1. There is no deadline on when you must file tax returns past due
Despite this leeway, it pays to be in good standing with the IRS by filing your tax returns on time. For one, penalties will be charged to your account for your failure to comply with timely tax return filing. Specifically, for every tax return not filed, you will be charged 5% of the taxes you owe for the tax year in question. The penalty accrues each month the return is late up to a maximum of 25%.
2. You only have three years to file your return if you want to claim a refund
Many taxpayers miss out on their tax refund simply because they did not file an income tax return. If you are due a refund for estimated or withholding taxes, be sure to file your federal back tax return not later than three years from the due date of the tax return. Once the three-year period lapses, you will lose your right to refund and the money will go to the U.S. Treasury.
You may choose not to file a tax return because you didn’t earn the minimum amount required for filing returns. In this instance, there will be no imposed penalty against you. However, you may lose out on receiving your refund.
3. Tax returns past due must be filed on paper and mailed to the IRS
The IRS requires taxpayers to paper-file back tax returns and send to them for auditing. Hence, you cannot electronically file tax returns past due. Here, you can hire a tax professional to prepare your returns to make things easier for you.
4. If you’re missing past-year tax documents, you can get a tax transcript or file Form 4506-T
If you are preparing a return past due and need information on your adjusted gross income in the previous year, the IRS will require you to file Form 4506-T. This is a pre-requisite before you can obtain a copy of your previous tax returns from the IRS. However, the process requires a fee and may take up to 75 calendar days.
Alternatively, you can obtain a tax transcript from the IRS if you need immediate access to your prior tax records. You can do this online for free through the IRS site. Keep in mind that the method you used – whether through paper or electronically – to file your previous tax returns and balance dues, if any, affects your current year transcript availability online.
5. The IRS will file a substitute tax return for you if you wait too long before filing tax returns
If you wait too long before filing a back tax return, the IRS may intervene and file a tax return for you. This is called a substitute for return (SFR). This would not be in your best interest because they won’t claim any tax credits or deductions you’re entitled to. As a result, you’ll likely end up owing more taxes than if you filed the return yourself.
But before this happens, the IRS will issue a CP3219N or Notice of Deficiency. This gives you 90 days to either file the past-due tax return or file a petition with the Tax Court to argue your case. If you fail to make an action within that period, the IRS will proceed to file a substitute return on your behalf.
6. The statute of limitations on assessment will not start until you file a tax return for the year in question
The statute of limitations on assessment is the period the IRS audits a submitted income tax return. Under the law, the IRS has three years to audit a tax return. Beyond that period, it can no longer review a submitted return. However, the three-year period will not run until you have filed your return for the year in question.
7. The statute of limitations on assessment can be extended
Certain situations may prompt the IRS to extend the statute of limitations. For example, if you failed to report over 25% of your gross income in your original tax return, the IRS will extend the statute of limitations to up to six years. It doesn’t matter if the omission is intentional or not. The IRS will still audit the subject tax return within the six-year period.
Likewise, if you filed a fraudulent return, it can lead to an increased period of assessment to longer than six years. This applies even if you filed an amended return correcting the false information you initially reported in your return since such an act constitutes tax evasion, which requires a thorough review of the tax return in question.
8. It could be beneficial to amend a tax return even if you filed the original return years ago
It is common for taxpayers to realize that they inadvertently omitted essential information in their tax return years after they submitted it. In some instances, such information could have made them eligible for a refund or significantly reduced their tax liability. Don’t panic if you find yourself in the same situation because you still have a remedy to claim your refund.
If you are due a refund, you have three years from the date the original return was filed or two years from the date you paid the tax due to amend your initially filed tax return. If you filed the amended return beyond the three-year period, you might still be eligible to a refund for the payments made within the last two years of filing the amended return.
This strategy is especially beneficial if you are in a long-term payment plan for taxes assessed based on a substitute return.
9. In case of an overpayment, you may be eligible to a refund
There are instances where a taxpayer pays their taxes but fails to submit a return. Then, after three years or more, they received a letter notifying them that the IRS has prepared a substitute return on their behalf. In some cases, the substitute return contains a balance due.
If you are in this situation, you have a recourse to settle the issue. You may still file a tax return for the year in question if less than two years have passed since you paid the taxes. If you paid more than what you actually owe, the IRS would refund the difference.
However, if you file the past-due tax return beyond the two-year period, then you lose your right to a refund for the overpayment. If you have an outstanding balance, you might not be able to use the overpayment to offset it.
Filing Your Tax Returns on Time
Filing tax returns on time can sometimes be challenging, and it could be for reasons that are beyond your control. However, keep in mind that failure to comply with the required time frame can complicate the issue. Late tax returns can increase your tax liability and even disqualify you from receiving tax discounts or refunds that you might qualify for.
If you have a tax problem and need a tax expert to help you settle the issue, reach out to us at Peace of Mind Tax Help. Our tax negotiation services are led by a team of experts in tax negotiation and mediation.
Contact us today so we can help you minimize your tax liability!