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By Michael S. Anderson of Anderson Tax Law logo for Arizona tax attorney Michael S. Anderson P.C.
  • Filing Late Tax Returns – 3 Important Rules to Know

    Filing Late Tax Returns

    1. IRS filed returns can be changed. The IRS constantly files returns for non filers based on income information it has recieved. The returns are almost always incorrect and overstate the taxpayer’s liability. The IRS uses these returns to get the taxpayer’s attention. The good news is that the correct return filed correctly will almost always eliminate the IRS filed return. So don’t panic if you are getting bills for years you haven’t filed, just create the correct return.

    2. Statute of limitations rules play a big role in the filing of late tax returns.

    a. The first rule is that the refund for a tax return is lost forever if the return is filed more than three years after it was due.  This rule affects many more taxpayers than you would think.  The IRS makes a large profit each year on the number of returns left unfiled with refunds due.

    b. The second is the statute of limitations related to collecting tax debt. The Service has 10 years to collect a debt from the date it was assessed. They tend to apply this rule to returns they have completed and assessed. If the substitute return was assessed 8 years ago for example and shows $100,000.00 in debt, it may not make sense to file the correct return even if it reduced the debt to $10,000.00 depending on your current financial situation. It may make more sense to let the clock kill the debt and avoid the hassle of completing the returns.

    c. The third is the deadline the IRS has to audit a return. An honest return can only be audited within 3 years of assessment.

    3. The IRS can stick you with penalties and interest on tax debt not paid in full by the deadline for filing. Late filing and late payment penalties can be very large and can be difficult to remove.