A reader’s fiancé hasn’t paid his taxes in years. Now he wants to fess up — and settle up.
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Question: My fiancé has not filed federal taxes since 2008, when he was laid off after 20 years of working in customer service for a bank. He filed his state taxes and paid up to 2011 to do the best he could at the time, but then he just became overwhelmed and stopped filing. Anyway, he’s now trying to do what’s right. H&R Block suggested he call the IRS and ask what he owes. Is it better to contact the IRS first or do the taxes first? He used to get letters from the IRS, but they stopped coming in 2011. Also, he has a lien, although he didn’t own anything and actually just surrendered his car last year. He’s afraid they will go into his bank account and seize his money. — Carla in California
Mandi Woodruff, executive editor at Magnify Money, responds…
I don’t know your fiancé’s income during the years in question. So, it’s tough to understand the full impact of not filing a tax return. Here are a few factors he should consider, though…
How much income did he have during those years?
Not every person who earns income must file a return. The minimum income amount that would require you to file a tax return depends on your filing status and age. For 2018 returns, the minimum for a single taxpayer under age 65 is $12,000. If your fiancé earned less than that in 2018, he generally wouldn’t need to file a return. The minimum threshold changes each year, so his first step should be comparing his income for each year to the minimum income threshold, which can be found in the Form 1040 Instructions for that year .
Was he owed a refund?
Next, even in years your fiancé was required to file a tax return, he may not have owed. If the IRS owed him a refund based on over-withholding from a job or tax deductions and credits, there’s no penalty for filing late. However, taxpayers have only three years from the original filing deadline of a tax return to claim a refund. For example, a 2009 return would have been due on April 15, 2010. If you add three years to that filing deadline, he had until April 15, 2013 to file his 2009 return and still get a tax refund. Otherwise, that refund is lost forever. If your fiancé might be due a refund for 2015, he should file that return right away to claim it.
What if he really does owe taxes?
Let’s move on to what happens if your fiancé owed tax for the years in question. While taxpayers only have three years to claim refunds, the IRS has 10 years to collect outstanding tax debts. This 10-year window starts on the day you file. Since your fiancé hasn’t filed returns, the statute of limitations for collecting his tax liability remains open.
It’s possible the IRS assessed a proposed tax liability on his behalf through the Automated Substitute for Return (ASFR) Program. The ASFR Program allows the IRS to use third-party information (such as W-2s and 1099s) to calculate a tax liability on the taxpayer’s behalf. It’s possible that some of the notices your fiancé received from the IRS in years past were assessments from the ASFR Program. However, that program was significantly scaled back in 2017 due to lack of budget.
How he can contact the IRS
Now, the question is how much he owes and what he can do about it. H&R Block’s suggestion to call the IRS and find out what he owes is one option. People who haven’t filed for several years and owe back taxes are hesitant to draw attention to themselves by calling. But IRS representatives are trained to work with taxpayers who want to get compliant.
IRS Policy Statement 5-133, Delinquent Returns – Enforcement of Filing Requirements, says taxpayers are generally considered to be in good standing with the IRS if they’ve filed six years of back tax returns, although the IRS may require tax returns from further back in some situations. He can call the IRS at 1-800-829-1040 to confirm whether they will accept six years of filed returns in order to consider his account to be current.
If your fiancé doesn’t feel comfortable doing this on his own, he can authorize a professional to contact the IRS on his behalf by filling out Form 2848, Power of Attorney and Declaration of Representative .
Then he needs to file his taxes
Once your fiancé knows which years need to be filed, if he has all of his documents for those years he can prepare the returns himself using online tax preparation software or work with a professional to get caught up, year by year. If he doesn’t have documentation, a good place to start is ordering a Wage and Income Transcript. This transcript shows data reported to the IRS, including W-2 income, 1099s, and other informational returns provided to the IRS. A Wage and Income Transcript is available for up to 10 years.
He can order this himself using the Get Transcript Online tool or authorize a professional to order the transcript on his behalf using the same Power of Attorney form mentioned previously .
Getting caught up after a decade of not filing tax returns won’t be easy, but it’s preferable to the alternative. When tax returns aren’t filed late, the IRS charges interest and penalties on top of the tax owed.
Plus, the IRS has collection powers that other creditors don’t have.
Now, about the lien on his property…
You mentioned the IRS may have already placed a lien on his property. A lien attaches to all of his assets, even those he might acquire in the future. The IRS can also levy his paycheck or bank accounts. Once you’re married, if you file returns jointly, the IRS can withhold any refunds you might be entitled to in order to pay off his back taxes.
Fortunately, the IRS has several options for paying off tax debts in installments. Once your fiancé gets approved for an installment agreement, as long as he makes payments as agreed, the IRS won’t pursue any other collection action . Facing the fear of owing back taxes is often the worst part. By finding out which years need to be filed, gathering documents, and filing his returns, your fiancé can get back on track with the IRS and avoid the hefty penalties that come from being on the wrong side of the IRS.
If you need help filing this year, check out Debt.com’s extensive guide How to File Taxes.
Published by Debt.com, LLC