It is not uncommon for an individual or a business to have missing tax returns with the IRS. The reason is typically fairly simple. The individual or business already owed taxes to the IRS, or when it became known that tax would be owed to the IRS, and could not be paid, the tax return or tax returns were not filed with the IRS. The missing tax returns could range from 1040 Individual Income Tax Returns to 941 employment tax returns. Regardless of the type of tax return, having missing tax returns with the IRS needs to be dealt with properly.
Missing tax returns create many problems and can often compound the overall situation. Below are a few of the problems created when a taxpayer does not file tax returns with the IRS.
1) If a taxpayer owes money to the IRS, but has missing tax returns, the IRS will not accept any type of proposal to resolve the tax debt until all returns have been filed. The IRS requires that a taxpayer be current and compliant with their tax obligations to establish an agreement, or even consider a proposal. Part of being current and compliant is having all current tax returns that are due filed with the IRS. A taxpayer may find themselves between a rock and a hard place if certain returns have been filed and tax is due, and other returns are missing. The IRS will collect on the past due tax, but will not formalize an agreement until all returns have been filed.
2) The failure to file penalty accrues rapidly at 5% per month up to 25%, and is a very hard penalty to have waived or abated. Thus, if you owed $10,000 in tax, and file the return 3 months late, you will have accrued an additional $1,500 in penalty for not timely filing the tax return.
3) The failure to file tax returns can be a criminal offense, and the taxpayer who has not filed the tax returns may be prosecuted. Typically it is better to file the returns prior to the IRS contacting your regarding the missing tax returns.
4) If the missing returns is the income tax return of a pass through entity such as a partnership or S corporation, the owners of the business cannot prepare and file their 1040 individual tax returns until the business income tax returns are prepared because they need the K-1 to properly report the pass through items.
The above are just a few of the problems when tax returns are not filed or filed late with the IRS. The good news is, if you have missing tax returns, the situation can typically be resolved by filing the returns and moving forward with resolving any tax debt. If you do not have records, the IRS may have your wage & income information that can be used to prepare the returns, or data for a business can be reconstructed.
If you have missing tax returns, contact The McGuire Law Firm to speak with a tax attorney in Denver or Golden Colorado regarding your options and issues to consider.