The Results Of Having Back Tax Returns

One common IRS ailment that has stricken millions of people is having back tax returns that have not been filed with the Internal Revenue Service. It is unfortunate that this ailment occurs in so many cases because it is a completely avoidable problem.  Like any common ailment, when left untreated, it leads to a series of other issues that can be more problematic than the original ailment.

Most people who have years of back tax returns that need to be filed with the IRS start off in a similar way to other people. Usually, a problem occurs in that first year that causes a person not to file with the IRS. In general, the original problem is something like a divorce, a separation, an illness, too busy, not having their W-2, not having their 1099, not having receipts, forgetfulness, not understanding their tax situation or a personal problem that occurs in someone’s life. Another thing that is common with people who fail to file with the IRS is that they expect to owe money to Uncle Sam and because they can’t pay the amount they expect to owe, they just don’t file. Regardless of the reason for their failure to file with the IRS, new problems now start to emerge.  

Here is a typical progression of what happens to people who have several years of back tax returns that were not filed with the Internal Revenue Service.  They first get letters from the IRS indicating that the IRS doesn’t have a tax filing from the person and they should file it.  Then, the IRS steps up the aggressiveness of the letters they send to the person and they give them a deadline to file. When that doesn’t happen and the new deadline to file is missed, the IRS then files an SFR on behalf of the person. An SFR is the IRS terminology and abbreviation for a substitute for return.  The IRS will file these SFR’s for one or several of the years not filed.

Once this first phase of progression has been completed on the back tax returns, the IRS then moves to the collection phase of the problem. Now, one can see how the original ailment is getting worse.  A person now receives a sequence of letters threatening assets seizure if the person doesn’t pay the amount determined by the SFR action.  The typical asset seizure by the IRS comes from the garnishment of a person’s wages or social security earnings. The other typical assets seizure comes from the IRS taking money from a person’s bank account.  They can decide to seize other assets as they deem appropriate.

The most unfortunate result of having back tax returns not filed with the IRS is that in a significant number of cases, the person would not generally owe the dollar amount that the IRS says that they owe.  However, because the person failed to file, the IRS calculated an amount due in their favor based on the SFR rules that allow them to do it. This is an IRS problem that was completely avoidable. Once it becomes a problem, it is fixable to some lesser degree. The best way to avoid any of these issues is to hire a professional to help.

Back to main topic: Tax Returns
Preparing your 2006 Tax Return
Unfiled Tax Returns
E-File Income Tax Return
The Problems With Not Filing Back Taxes
Needing Help With Back Taxes