FINANCE: You Owe the IRS and Have Not Filed Your Tax Returns

Column by Stephen Wiggs


Thousands of Americans every year do not file their tax returns and owe the Internal Revenue Service in violation of federal tax laws. Likewise, there are thousands of reasons why, stemming from those who believe that the United States lacks the legal authority to levy and collect taxes, to those who simply don't know how to file a tax return or are not able to pay the taxes owed. Americans who owe the IRS a tax liability need to take a systematic and organized approach to rejoining the tax-filing and tax-paying society to ensure their tax headaches are minimized.

1. What Tax Years Need To Be Filed?

If you haven't filed a tax return "for a while," you need to precisely define "for a while." Generally, a person who has not filed tax returns for a while will need to file only this year's return and the prior six years for which there was a filing requirement. Determining which of the past six tax years need to be filed usually involves a review and analysis of IRS transcript information to determine the tax years during which there was sufficient income or some other taxable event requiring the filing of a tax return. Next, compare any personal records you may have to the IRS transcript information for accuracy and to confirm that all income and/or taxable transactions were reported to the IRS.

2. Did The IRS File For You?

Leave it to Uncle Sam to think of ways to tax you, even if you didn't file a tax return. In some cases, if the IRS has received sufficient income information for a person from third-party sources, i.e. income reporting forms W2 and 1099, but does not receive a corresponding tax return, the IRS may prepare a tax return for you. This is called a Substitute for Return, or SFR. Essentially, the IRS will use the income information it has on file for you, apply a minimal standardized deduction, ignore qualified credits and deductions, because such were not claimed on a filed tax return, and wallah! The once non-filer now has a tax debt. Get ready to get out your checkbook or seek tax relief, or keep reading.

Although there are a few cases in which an SFR is accurate, most persons who have an SFR filed for them may benefit from filing an original tax return. That means preparing a tax return with the proper filing status, claimed dependents, deductions and credits. Depending on the circumstances for each individual tax year, the application of such credits and deductions may resolve the IRS's substituted tax assessment against you. However, in some cases there may still be a tax debt, although reduced. An experienced tax practitioner will provide you with your legal advantages and disadvantages of amending a substitute for return, when the amended return would still result in a tax debt.

3. IRS Rehabilitation is Hard Time

So, now that you've reviewed your records, reviewed your tax transcripts, and determined which tax years you either need to file, don't need to file, or the IRS filed for you, the next step is to file the required tax returns that are still outstanding. Even if filing will result in a tax debt, the returns should be filed to get you back into the system. This is normally the most difficult step for persons facing a tax debt. Filing your tax returns is called compliance, and is a necessary requirement before exploring any tax relief option. Even if you can't pay the debt owed, the outstanding required returns must be on file with the IRS before you can plead your non-payment case.

4. Protect Your Paycheck

You have now filed your required outstanding tax returns. You may not feel better now, but you're on your way toward sleeping better at night. If you owe a debt that you can afford, pay the tax bill. However, if you're like many Americans, this debt was not expected and you simply cannot afford it. The worst thing you can do is nothing and simply hope that the IRS does not go after your hard-earned money. The IRS is a very powerful and unforgiving collection machine. It is easier to be prepared and have an organized and systematic plan for tax relief than to get stuck in the bowels of the IRS collection machine. The IRS has several tax relief options available for taxpayers who cannot pay their taxes. Such options vary from allowing additional time to pay your tax debt in full, to reducing the amount of your tax bill to an affordable amount. Most of the tax relief options are determined by your facts and circumstances, and how well and organized your facts and circumstances are advocated to the IRS on your behalf.

Our firm can provide tax relief representation and can assist taxpayers in resolving their tax headaches. For more information regarding IRS tax relief or other tax issues, contact me at



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