If You Haven't Filed Your Taxes In Years

You may be in the same boat as many people who neglect to file their federal income taxes for years on end. At first, you probably expected to catch up when financial times were better. Now, with years of delinquent taxes piled up, the task seems too daunting to tackle.

Failing to pay your past due taxes is technically a misdemeanor, for which you can be fined up to $25,000 for each delinquent tax year and possibly sent to prison for a maximum of one year. But the IRS is much more interested in getting you to pay your taxes than sending you to prison. So the IRS doesn't prosecute anyone who comes forward voluntarily to remedy the problem, unless there are signs of blatant fraud or you're a public figure who's drawn attention to your tax delinquency.

The IRS will, however, charge you penalties and interest for any tax you may end up owing for previous years. The "good" news is that the IRS can't assess penalties higher than 25 percent of the tax due for a particular year. But interest continues to accrue on top of the penalties, and adds up pretty quickly, especially for taxes several years overdue.

You may be able to persuade the IRS to cut down on the penalties owed if you can prove you had "reasonable cause" not to have filed your tax return(s). Circumstances the IRS might consider "reasonable cause" include:

• Death of a family member
• Mental illness
• Alcoholism
• Bad advice from your accountant
• Extended military service

If you haven't filed for past years, you may be surprised to learn that the IRS has filed a return for you, called a Substitute for Return ("SFR"). In that case, the IRS will have calculated your tax at single or married filing separate rates, with no dependents or itemized deductions. You'll need to amend the IRS return(s) to make sure you take full advantage of whatever deductions might have been available to you that year.

The first step in untangling a past due income tax mess is picking up the phone and calling the IRS. They'll want such personal identifying information as your name, address and social security number- as well as information about your employer and current salary- before they'll discuss your delinquent tax returns with you.

The IRS will want you to commit to a definite time by which you'll promise to file all delinquent returns. If you find you're having trouble meeting this deadline because it's taking longer than you thought to get your paperwork together, it's best to call the IRS ahead of time to request an extension.

When you establish a deadline for filing your returns, you'll want to get "account summaries" from the IRS detailing:

• What returns have already been filed (either by you or by the IRS)
• What taxes are currently owing
• Whether refunds due to you have been applied to delinquent taxes

You can then file tax returns for each year you're required to file, based on your most accurate estimation of your income, deductions and filing status for each year. If you don't have paystubs or W-2 forms detailing your income for years past, you may be able to reconstruct what you earned based on old checkbook registers or other similar documentation.

Any refund you would have been eligible for won't be refunded to you or credited against amounts you may owe more than three years after the date the return for that year was due.

The IRS can't assess penalties higher than 25 percent of the tax due for a particular year. But interest adds up quickly, especially for taxes several years overdue.

Once you've filed all your returns, the IRS can tell you how much tax you owe, and the exact amount of penalties and interest. At that point, you can set up a payment plan or discuss an offer of compromise with the IRS.

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