Jun 6, 2008

How many back returns do I need to file?

What is filing compliance for the IRS? Traditionally, filing compliance was the last six years returns (as of 6/6/2008- this will be the years 2002-2007). The IRS established this as a policy statement in 2006 although they do not publish this policy to the public. The IRS reserves the right, with proper internal approval, to waive the 6-year compliance policy (and they regularly do this when you want a tax abatement program such as an Offer in Compromise, penalty abatement and/or audit reconsideration).

We have blogged on this topic in the past stating that this policy is established due to the inability to the IRS to detect/check your old income reporting items (i.e. IRP- Forms W-2, 1099, etc. filed under your SSN) past 6 years. We also stated that when the IRS enables the IRP data to go past the last six years, compliance will be increased to the number of years that the IRS has data.

Well, that time is soon approaching. The IRS has recently uploaded the last 10 years of IRP data. The IRS has not changed the 6 year policy yet, but look for it. Now the IRS has the ability to measure your last 10 years of income via the IRP system. They are no longer limited by their internal, real-time limits.

If you have unfiled tax returns, you will need an unique professional that has experience in old years to pull prior years IRP and to be able to complete the returns to the satisfaction of the IRS (remember, now they will be able to review for accuracy). Your local tax preparer is generally not the answer unless they keep old years software and are able to meander through the IRS maze.

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