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Fazzio Law Offices

Years of Unfiled Tax Returns -- Call Fazzio Law Offices Today

Unfiled Back Tax Returns

When individuals and businesses get into tax trouble, they often stop filing tax returns. Why file additional returns when you are already behind and will just owe more?  This is a serious problem, but one that can be fixed. 

If you have unfiled tax returns, you are not alone. Estimates are that about 10% of the population with a filing obligation fails to file each year.


So what are the risks of “non-filing” and what should you do about it? The obvious solution is to call a tax attorney or tax professional and get your filings up to date! But, before you do, let’s talk about the consequences if you don’t.

Is Non-Filing a Criminal Offense?

Yes.  It is a crime to “fail to file” tax returns. But, only if your “failure to file” was willful. Suffice it to say that almost any excuse for not filing will keep you out of hot water as long as you correct the problem quickly. But, only if you are one of the “folks.” The IRS predominantly seeks criminal charges for “failure to file” against professionals, sports figures, celebrities, and the extremely wealthy. Think Wesley Snipes, Willie Nelson or Tom Daschle.

For each non-filing offense, the IRS can seek up to 5 years in prison and $250,000 of penalties, together with all interest and penalties and costs of prosecution. The criminal division of the IRS does not select many “non-filer” cases for investigation, but of those they do investigate, estimates are that about half or 50% are selected for prosecution. Of those prosecuted, 78% were indicted and served an average of 40 months in federal prison, together with fines, payment of all delinquent taxes owed, penalties, interest and costs of prosecution.  (https://www.irs.gov/uac/related-statutes-and-penalties-general-fraud).

The IRS policy is that there are two standards. As the IRS sees it, people who make millions of dollars a year and have a team of accountants at their beck and call have no excuse for not filing or paying their taxes. Other people with increased risk of prosecution are attorneys, accountants, financial planners, stock brokers, real estate brokers, public officials, and television personalities. A special group within the IRS also targets travelling sports figures, and touring music and entertainment stars with sporadic but significant United States income.

Under IRC § 7203 it is a misdemeanor to willfully fail to file. Under IRC § 7201 it is a felony to willfully fail to file if you also engage in an overt act of evasion. (https://www.irs.gov/irm/part25/irm_25-001-007.html).

Are you at risk?  If the question even comes to mind, you should consult with a tax professional to find out. It is rare for the IRS to seek criminal charges for a “non-filing” case.  But, the consequences if they do can be catastrophic.

What Should You Do If You Have Lost Your Records?

In many cases individuals can’t locate old W2s, 1099s and other tax records. They may have changed jobs, moved, or inadvertently thrown away these documents. Have no fear!  The IRS keeps a record of every W2 and 1099 filed on your behalf and reports it on something called a Wage and Income Transcript. (https://www.irs.gov/individuals/tax-return-transcript-types-and-ways-to-order-them). We can get this information for you and file your back returns quickly and without a hassle.

What if you are a business and you don’t have all of your records for deductible expenses to offset your income? In that case, you can use estimates which are based on reasonable calculations. There are many techniques for doing this, including using industry indexes that track the proportion of utilities, rent, or other metrics to Gross Revenues. Most businesses are able to get old bank statements and credit card statements, and this is usually enough from which to estimate business expenses and prepare a back tax return.

Missing documentation has been a common problem for businesses, especially small businesses, ever since we have had a corporate income tax. In an early 1930 case, Cohan v. Commissioner, 39 F.2d 540 (2d Cir. 1930), the Circuit Court held that estimates may be used if you don’t have accurate records. This is often referred to by tax practitioners as the “Cohan Rule.” (https://www.law.cornell.edu/wex/cohan_rule#).  Incidentally, George M. Cohan was the Broadway theatrical figure responsible for hits like “Give My Regards to Broadway” and “Yankee Doodle Dandy,” and whose statue still stands in the middle of Times Square. There is a lot of history behind the Cohan case, including its author, Judge Learned Hand, who took a dim view of the IRS refusing to allow Mr. Cohan any of his expenses in “gotcha” fashion, simply because he had paid in cash and hadn’t saved receipts and invoices. In Judge Learned Hand’s view, this was too extreme, and reasonable estimates should be credited by the IRS.

How Far Back Should You Go When Filing Back Tax Returns?

Generally, when you have fallen behind on your filing requirement, the IRS expects you to go back and file at least six years of delinquent returns.

The six year enforcement period for delinquent returns is found in IRS Policy Statement 5-133 (https://www.irs.gov/irm/part1/irm_01-002-014.html) and Internal Revenue Manual (https://www.irs.gov/irm/part1/irm_01-002-014.html.

How Long Do You Have to Fix the Problem?

The best answer to this question is address the problem today.  But, if the problem goes back years, you probably already have accumulated quite a bit of IRS mail letting you know that the problem is not going to go away on its own.

If you don’t file an individual tax return, expect an IRS Notice about 15 months after the due date. If you don’t file your 941 Employment Tax return, expect IRS Notices to begin coming in after about 8 weeks of the due date for the return. The notice cycle for unfiled 1040s is usually about six months before collection efforts commence. The notice cycle for 941 Employment Tax returns is usually about 22 weeks before a Revenue Officer is assigned in the field.

Call us today to get your back tax returns filed and solve your tax problem -- (201) 529-8024.