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Technical topics regarding tax preparation.
#1
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Taxpayer has not filed their tax return since 2005. The IRS has transcripts going back to 2009.

Is there any other way to get a wage and income transcript for the 2006, 2007, and 2008 tax years? Anyone know if social security has this information? The taxpayer has one W-2 and one 1099-R each year.

Normally not something I would mess with...Family...
 

#2
makbo  
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I thought in this case the IRS is only interested in the most recent six years of returns?
 

#3
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State of California sent a letter going back to 2007. The state has assessed tax based on the information they have. Tax returns were not filed.

Should we only file 6 years of tax returns for the IRS?

The State of CA told the taxpayer they need to file all the back tax returns. It's possible the taxpayer misinterpreted this. Any idea if the taxpayer is required to file the California state tax returns if a balance has been assessed?
 

#4
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When I had a similar situation with CA, I called the tax practitioner hotline and they were very helpful. Also provided me with NPA's which had earnings history which the NPA was based on.

Unless that tax assessed is incorrect, my understanding is six years - same understanding as in post #2 above.
 

#5
skassel  
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California has no six year rule and there may be reasons why a taxpayer needs to file all the way back. That information hasn't been supplied by the original poster.

If IRS has SFR'd the years 2006 through 2008, by definition they have the income and withholding as well. You asked for Wage and Income transcripts from IRS. You also need to get Account Transcripts for ALL of the years 2006 forward.
Steve Kassel, EA
 

#6
taxnoob  
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Only IRS has 6 year SOL rule.
CA does not have SOL and can assess as far back as 10-15 years.

I would suggest only prep past 6 years for IRS. Go beyond if it is SFR'd.
For CA, prep what they are looking for and assessing past the 6 years. Taxpayer may have to go to SSA to obtain info. FTB Hotline may give it but depends on the agent.
 

#7
LW25  
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taxnoob wrote:Only IRS has 6 year SOL rule.
CA does not have SOL and can assess as far back as 10-15 years.

I would suggest only prep past 6 years for IRS. Go beyond if it is SFR'd.
For CA, prep what they are looking for and assessing past the 6 years. Taxpayer may have to go to SSA to obtain info. FTB Hotline may give it but depends on the agent.


Note: The Federal 6 year statutory period of limitations on assessment of a deficiency does not begin to run until the taxpayer files the return.

EDIT: Actually, the basic rule is a three year period.
 

#8
skassel  
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taxnoob wrote:Only IRS has 6 year SOL rule.
CA does not have SOL and can assess as far back as 10-15 years.

I would suggest only prep past 6 years for IRS. Go beyond if it is SFR'd.
For CA, prep what they are looking for and assessing past the 6 years. Taxpayer may have to go to SSA to obtain info. FTB Hotline may give it but depends on the agent.


The IRS does not have a 6 year Statute of Limitation rule. It has nothing to do with a Statute of Limitation. It is a Policy Statement and nothing more. IRS can, at their whim, change that tomorrow.

4.12.1.3 (10-05-2010)
Enforcement Period
Policy Statement 5-133 (P-5-133), IRM 1.2.14.1.18, Delinquent returns—enforcement of filing requirements, discusses delinquent returns and the enforcement filing requirements. The enforcement period is not to be more than six years. However, the extent to which delinquency procedures will be enforced will depend upon the facts and circumstances of each case, and by reference to factors ensuring evenhanded administration of staffing and other Service resources. Enforcement for longer or shorter periods may be used when consideration has been given to:
The taxpayer’s prior history of noncompliance.
The existence of income from illegal sources.
The effect upon voluntary compliance.
The anticipated revenue in relation to the time and effort, required to determine tax due.
Any special circumstances existing in the case of a particular taxpayer, class of taxpayer, or industry, or which may be peculiar to the class of tax involved.

I also disagree with your statement concerning the FTB going back 10-15 years on unfiled returns. In 32 years, I have never seen anything of the sort. They will do a Filing Enforcement as quickly as a year after the due date of the return. If the FTB has the information, they don't wait. The FTB has no interest in assessing liabilities they cannot collect. However, there is NO Statute of Limitations on the assessment of an UNFILED return for either the FTB or the IRS.

And California DOES have a collection statute of limitations of 20 years.

AB 911 (Chu, Chapter 398, Statues of 2005) limited the collection period to 20 years
beginning from the date the last tax liability became due and payable, except for a
liability related to the amnesty penalty assessed under R&TC section 19777.5.
Steve Kassel, EA
 

#9
taxnoob  
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skassel wrote:
taxnoob wrote:Only IRS has 6 year SOL rule.
CA does not have SOL and can assess as far back as 10-15 years.

I would suggest only prep past 6 years for IRS. Go beyond if it is SFR'd.
For CA, prep what they are looking for and assessing past the 6 years. Taxpayer may have to go to SSA to obtain info. FTB Hotline may give it but depends on the agent.


The IRS does not have a 6 year Statute of Limitation rule. It has nothing to do with a Statute of Limitation. It is a Policy Statement and nothing more. IRS can, at their whim, change that tomorrow.


I don't understand what you're trying to say here; but are you telling me that if a tax payer has an unfiled return (say 2012 - which is past statute) and the IRS does not require it, filing the return will create a balance, you will still go ahead and file it?

skassel wrote:I also disagree with your statement concerning the FTB going back 10-15 years on unfiled returns. In 32 years, I have never seen anything of the sort. They will do a Filing Enforcement as quickly as a year after the due date of the return. If the FTB has the information, they don't wait. The FTB has no interest in assessing liabilities they cannot collect. However, there is NO Statute of Limitations on the assessment of an UNFILED return for either the FTB or the IRS.


I see. Is there a reason then that we are in 2019 and FTB would require filing a 2005 return?
 

#10
LW25  
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taxnoob wrote:

I don't understand what you're trying to say here; but are you telling me that if a tax payer has an unfiled return (say 2012 - which is past statute) and the IRS does not require it, filing the return will create a balance, you will still go ahead and file it?


I believe that what skassel is saying is that what we are really discussing here is not a "statute of limitations," but rather just an internal IRS policy about how far back the IRS normally wants to go to get a taxpayer to file returns. And, as skassel noted, an internal IRS policy can be changed by the IRS. The policy is not a law.

An unfiled Federal income tax return, by definition, is not "past statute" for IRS assessment of a deficiency. In such a case, the statutory period of limitations on assessment (generally a minimum of 3 years from the time of filing, but sometimes a minimum of 6 years) not only has not yet expired -- it has not even started. The period starts when you file the return, not way back on the due date for filing. If a taxpayer was required to file a Federal income tax return for the year 2012 and he or she hasn't filed it, the statutory period of limitations on assessment has not even begun to run. If the taxpayer never files the return, the statutory period for assessment will never start.

Various practitioners do disagree over whether the client should be encouraged to file returns that are over six years past due.

A willful failure to timely file a Federal income tax return is a criminal offense -- a misdemeanor, punishable by up to a year in prison. There is a statutory period within which the government must commence a criminal case for this. The period is generally six years, beginning at the time of the commission of the offense and ending at the time the indictment is found (or, in the case of the institution of a criminal "information," at the time of the institution).

So, if this six year criminal statute of limitations has expired (and bearing in mind the IRS policy), one might consider whether to refrain from bugging the client about filing such an old return (even though the statutory period on assessment has not yet begun to run and will never begin running unless the client files the return). The chance of a criminal prosecution in most cases is very small. Personally, I lean somewhat toward encouraging the client to bring the filings up to date, but facts and circumstances of each situation should be considered.
 

#11
Nilodop  
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A willful failure to timely file a Federal income tax return is a criminal offense -- a misdemeanor, punishable by up to a year in prison.. So if a normal 4/15 due date passes, the 6 years for the statutory period within which the government must commence a criminal case depends on when the willfulness begins? Maybe for a year or two or much longer, taxpayer was careless, busy, ill, traveling, whatever, but intends to file, and then, after some years, realizes how deep in the hole he'll be by filing and owing taxes, interest and penalties, so then he willfully decides not to file. That's when the 6-years criminal statute begins?
 

#12
BFStax  
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I got a phone call from a prospective client this morning with this same exact situation, except in CT. Unfiled taxes for 12 years and taxpayer is very concerned about me even filing a PoA in order to not "notify" the IRS that he exists. I said that isn't how it works but after this discussion am thinking maybe we don't file all 12 years and possibly only go back 6. I think it depends on if any returns were SFR'd.

One reason to go back and file all years is to sleep better at night. These delinquent filers are usually very stressed out because they are constantly worrying about a knock on the door from an IRS agent or seeing a notice in the mail.

Another reason is that with W2 employees sometimes the bottom line isn't as bad as they think. Maybe they were due a refund for all years and the only penalty is that they can't get the refund.

And filing back taxes will, in my potential client's case, give SSA credits for self-employment work. If they want to collect SS in the future they have to pay in.
 

#13
makbo  
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Nilodop wrote:A willful failure to timely file a Federal income tax return is a criminal offense -- a misdemeanor, punishable by up to a year in prison.. So if a normal 4/15 due date passes, the 6 years for the statutory period within which the government must commence a criminal case depends on when the willfulness begins? Maybe for a year or two or much longer, taxpayer was careless, busy, ill, traveling, whatever, but intends to file

How often we forget that not filing and paying on time makes one an illegal. "careless, busy, ill, traveling, whatever," -- those sound like good excuses for overstaying a travel visa too, don't they? :roll:
 

#14
taxnoob  
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BFStax wrote:. I said that isn't how it works but after this discussion am thinking maybe we don't file all 12 years and possibly only go back 6. I think it depends on if any returns were SFR'd.


Conduct a compliance call by having them sign an 8821. They will most likely only require the past 6, you are correct, unless SFR'd.

You will most likely require more than 6 with the state. It just depends if they were self-employed or not.
 

#15
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BFStax - your comment " in my potential client's case, give SSA credits for self-employment work" had me go look up the rules on this. One may not be able to go back as far as they might initially think and actually correct the SSA's "missing" records.

Here is a link to some info that may be helpful in your case: https://socialsecurityintelligence.com/ ... -too-late/
 

#16
BFStax  
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“An earnings record can be corrected at any time up to three years, three months, and 15 days after the year in which the wages were paid or the self-employment income was derived.”

And no exception applies if a tax return was NOT filed during this period. I did not realize this and may play a part in how many years we go back.

Conduct a compliance call by having them sign an 8821. They will most likely only require the past 6, you are correct, unless SFR'd.

What would be the point of the 8821 instead of 2848? Not sure I understand your comment about conducting a compliance call since the 8821 doesn't actually allow me to speak on behalf of the client. It just lets me receive documents, either verbally or in writing. So maybe you are saying I can call the IRS and speak with them to determine best course of action?
 

#17
LW25  
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Nilodop wrote:So if a normal 4/15 due date passes, the 6 years for the statutory period within which the government must commence a criminal case depends on when the willfulness begins? Maybe for a year or two or much longer, taxpayer was careless, busy, ill, traveling, whatever, but intends to file, and then, after some years, realizes how deep in the hole he'll be by filing and owing taxes, interest and penalties, so then he willfully decides not to file. That's when the 6-years criminal statute begins?


Very interesting question! I haven't researched the case law to find a case that might have something close to that fact pattern.

If I had to guess without having done the research, I would guess that a court would rule that the mens rea requirement of willfulness must be present at the time the return is due in order for the defendant to be guilty of willful failure to timely file. Under this theory, the six year statute would begin running on the due date. If the defendant really didn't have the "willfulness" state of mind at the time the return was due, he or she would not be guilty. Under this theory, "acquiring" the "willfulness state of mind" later on would neither make the defendant guilty of willful failure to timely file nor start the running of the six year period.
 

#18
skassel  
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taxnoob wrote:
skassel wrote:
taxnoob wrote:
I don't understand what you're trying to say here; but are you telling me that if a tax payer has an unfiled return (say 2012 - which is past statute) and the IRS does not require it, filing the return will create a balance, you will still go ahead and file it?

I see. Is there a reason then that we are in 2019 and FTB would require filing a 2005 return?


There MAY be reasons to file very old returns beyond the normal six years. For example, if the client wants to pursue an Offer in Compromise, there MUST be an assessment for ALL years. An SFR will suffice, but if there is no return and there was income, a return will have to be filed. There also could be a reason such as getting self-employed income recorded. If the taxpayer is 4 quarters short of the 40 required quarters to be eligible for Social Security and there was no income reported for an old year, it might be necessary. Bottom line is IT DEPENDS.

The FTB will not be pursuing a return for 2005. I would have to see written proof from the FTB to believe it. What a taxpayer claims an employee said is meaningless.
Steve Kassel, EA
 

#19
BFStax  
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There also could be a reason such as getting self-employed income recorded. If the taxpayer is 4 quarters short of the 40 required quarters to be eligible for Social Security and there was no income reported for an old year, it might be necessary.

This is what I thought but see my note above after reading the actual rules per SSA. The limit is 3 years and 3.5 months and after that you can't get self employed income reported. Can be a pretty tough lesson to learn but I never understand why taxpayers get themselves into this mess in the first place.
 

#20
Frankly  
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BFStax wrote: Can be a pretty tough lesson to learn but I never understand why taxpayers get themselves into this mess in the first place.

It's one of the downsides to cheating on your taxes.
 

#21
mscash  
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IRS wants six delinquent years as a matter of policy. If there are Substitute for Return assessments on older years an account transcript will clue you in on how much is wages and how much is 1099 (take SE TAx and work backward.) You can use those numbers as gross income and feed in deductions as needed.
 

#22
Joanmcq  
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This post is about CA. I recently prepared 2005-2007 returns for a client that had SFRs prepared by the FTB for those years. No SFRs by the IRS. the client had losses in those years, and couldn’t open a bank account because the FTB was still trying to collect on the SFRs. She filed the IRS returns just for the statute to run & for peace of mind.
 


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