All About Filing Delinquent Tax Returns

If you are a non-filing taxpayer, it’s important to know the steps to take to become current with your tax return obligations. There are many things to consider when going forward and filing returns that are past due. The longer you wait to file your returns, the more interest and penalties you will accrue. The best time to become current is always as soon as you possibly can.

Delinquent returns should be as accurate and conservative as possible. These returns are going to be under greater scrutiny with the IRS and it’s important that you not take deductions if you cannot prove you are eligible. Better to be extremely conservative and avoid being audited.

Proving Your Income

It is extremely important that you are able to actually prove the amount of income you are claiming on your delinquent tax returns.

There are a variety of ways to accomplish proving your income on a delinquent tax return, these include:

1. Indirect Net Worth Method

2. Indirect Expenditures Method

3. Indirect Bank Deposits Method

4. Transaction Method

5. Form W-2

6. Form 1099

7. Financial Statements

8. Deeds

9. Credit History

10. Credit Reports

11. Phone & Utility Statements

12. Credit Card Statements

13. Bank Statements

You should try and put together any and all the information you can gather to prove the income you are stating on your delinquent tax return. The more information you have, the better your situation will be in case of an audit.

Should I File One or All Of My Delinquent Tax Returns?

Legally you are required to file all returns that you did not file in the past. Some attorneys and CPAs will recommend that you only file six years of delinquent returns because of the statute of limitations for prosecuting taxpayers for not filing their return. However, there is no statute of limitations for assessing tax on tax returns that were never filed. That is why it is in your best interest to file all delinquent tax returns as soon as possible.

Even though you are recommended to file all delinquent tax returns, some may be harder than others to accurately assemble. If it has been many years and you are unable to honestly and accurately state your income, then it may be in your best interest not to file that return. In these situations, the IRS will investigate your ability to file a specific return and make a judgment call on whether they will require you to file it or not.

The Process Of Filing Delinquent Tax Returns

There are two ways to file your delinquent tax returns. One is through the IRS Service Center and the other is through the Automated Substitute for Return Unit. Once you submit your return through one of these systems the IRS will send an invoice for failure to file, failure to pay, penalties and interest.

The IRS is limited to one inspection of your books and records per tax period to determine the correct tax to assess you. This may include additional contact from the IRS to verify information or ask additional questions about a specific part of your return.

If your case is already in the collection process and your tax return resolves the issue, further collection efforts will stop. However, tax will be immediately assessed and interest will begin to accrue. If a Revenue Agent or Officer is involved and they are attempting to collect back taxes from you, make sure they are aware that you have filed your returns. This will show them that you are attempting to become current and will stop them from filing liens and levies against you.

Filing Business Delinquent Tax Returns

In most cases, a delinquent business tax returns will be handled by a Revenue Office or The Automated Collection System. The Revenue Officer will visit your business and try to collect information from you regarding your delinquent return(s). The Revenue Officer will then assign the taxpayer a due date for filing his delinquent return(s). If this deadline is not met, the taxpayer is considered to have willfully not filed his returns.

In situations where the taxpayer is not filing their returns like they are requested to do by the IRS, their case may be forwarded to the Examinations division or the Criminal division of the IRS.

Prior Years Tax Returns – 2 Tips to Prepare Your Prior Years Tax Return at Low Cost

If you have have not filed your tax returns for a while you might owe the IRS back taxes. But on the other hand, you actually might have had money coming to you but you just neglected to file your taxes. Either way if you have not filed a prior year tax return, it is always a good idea to file it now and get out of the rut.

Now how do you go about filing a prior year tax return? You have a few choices-

Choice #1 Contact a CPA. You can always find a good CPA if you look up your yellow pages. Maybe you already did that first. Well CPAs are expensive, especially when you file a prior years return – but this is the option to pursue especially if you are totally lost, do not have documents or are not confident enough. But if you have ever self-prepared a return ever you could easily prepare your prior year return. Even if you have not prepared a tax return yourself, if you are reasonably confident in your abilities, you can try doing this yourself.

So how do you file a prior year tax return yourself?

Choice #2- Use An Online Tax Service

One of the newest trends is to prepare your tax return using services like turbotax or taxcut directly on their websites. But even better, to do your prepare your prior year tax returns using online tax preparation sites. Only a few tax vendors specialize in filing old tax returns online.

Do not confuse between the terms ‘online filing’ and ‘e-filing’. E-filing is the IRS system to file your taxes electronically. Online filing allows you to prepare your tax using a website from an irs approved vendor. Online filing vendors also makes use of the IRS’ efile system to submit your tax return to the IRS. However, ‘e-filing’ is available only for the current years tax returns – it is not available for prior year tax returns.

Using online tax filing service is stress free and cost effective way to prepare your prior year tax returns There is no software to install so even someone with limited computer experience can do it.

Choice #3- Use Old Tax Software

Perhaps the cheapest option of all is to use old tax software. You can use older titles from prior years to prepare your tax return. So lets say, you find Turbotax 2002 or Turbotax from 2003 or even Turbotax 2007, you can load this up on your computer and walk through the steps to prepare your return. Most tax software have interview style questions – just like a tax professional would ask. This makes it easy.

Once you walk through the steps, you can print out the tax return on the tax forms that will be the exact same format as the tax return from the prior year. That is the beauty of this. You do not have to run around trying to find tax forms from prior years – the forms are built into the tax software. Using Old tax software to prepare your prior years tax return can save you a ton on money in tax preparation costs if you are reasonably confident in your abilities to use a computer.

Completing the Tax Return Form

Completing your tax return can be both frustrating and time-consuming but the whole process can be made a lot easier by understanding the processes and procedures beforehand.

You can complete your annual return on paper or online- using either HMRC software or one of the many readily available commercial softwares on the market. We recommend doing this online as it is quicker, prevents delays and there is no chance of it getting lost in the post.

The deadline for sending your tax return back

The deadlines differ depending on how you send your return back- these are called the filing dates. The deadline for paper tax return is 31 October following the end of the tax year, and this is the date HMRC must receive your annual return. If you are completing this online, HMRC must receive your tax return by 31 January following the end of the tax year.

It is very important you meet these deadlines as failing to do so will automatically incur a late filing penalty of £100. Another £100 penalty will be incurred if this is still outstanding after six months.

If you send your tax return by paper and you miss the 31 October deadline, you cannot avoid paying the late filing penalty by switching to the online return deadline of 31 January. If your tax amount is less than £100 however, HMRC may reduce the penalty to an amount that is equal to the tax that is due.

Paper Tax Return

HMRC guarantees to calculate your tax bill and let you know the result before the payment deadline of 31 January following the end of the tax year, providing you send your paper return by the filing date. If you send your return after the filing date, HMRC cannot guarantee to calculate your tax bill and tell you the result in time for any 31 January payment.

If you would like to calculate your tax bill yourself, or if your paper return is late, you can ask the HMRC for their Tax Calculation Summary pages and notes to help you work out your tax bill. The number to contact HMRC on for this is 0845 9000 404. You do not need to send the supplementary pages HMRC send you as part of your tax return.

Online Tax Return

The HMRC online return service is easy to use and saves time compared to the paper version. In order to be able to use the online service, you must first register by going to the HMRC website and following the registration process. HMRC will then send you a Personal Identification Number (PIN) and this can take up to seven days. Therefore we highly recommend you do not leave registering for the online service until 31 January. Remember, if you do then your return will be late and you will incur the late filing penalty- therefore do it will in advance.

A series of questions will be asked by the online tax return system to bring forward only the relevant parts of the tax return that apply to you. The system will then do the calculations for you and will provide an on-screen help for you as you go along. The system has other built-in checks to assist you in getting your tax return right.

Once you have completed the online return you will receive an acknowledgement of receipt.

Keeping records

To fill in a complete and correct tax return, you must by law keep all records. If your annual return is incomplete and you are found by HMRC to owe tax, you may be required to pay interest and a penalty- so keep all records and get it right in the first place.

Using provisional and estimated figures

If you are waiting for some of the information which you need for your annual return, you can use provisional figures to avoid delaying filing your tax return. If you are using provisional figures, remember to draw attention to this in the ‘Any other information’ box on the paper return or in the white space on the online return. Please remember to replace your provision figures with the final ones as soon as you know them.

Sometimes you may have to estimate an amount, for example, the private proportion of motoring expenses or the cost of using part of your home for business use. You do not need to replace this figures and you do not have to draw attention to this kind of estimate. You will find available guidance about this on the tax return.