Non-filer individual 2007 thru 2018: how far back to file?

Technical topics regarding tax preparation.
#1
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New client hasn't filed 1040/540 since 2007. There might be some years with reasonable cause but mostly not. Made payments with extensions every year that would created refundable/creditable overpayments for the years 2009 thru 2014. Both H and W W2's plus rentals.

No IRS or FTB threatening notices or reconstructed returns probably because withholding plus ext payments would exceed the tax on the income reported to the IRS and FTB.

Some of the years after that had modest underpayments or overpayments. I don't know what 2007 and 2008 would be because



1. too late to get wage and income transcripts from IRS for those years.

2. I'd have to mess around to install old versions of tax software.

Question:

In practice, would IRS or FTB go back more than 6 years and demand all the unfiled returns after the returns for 2009 thru 2018 are filed? I assume there's no statute tolling so it would always "hang" over the taxpayer's heads but the returns for say 2013 thru 2018 are filed and any balances paid, would that be all? Don't suppose there's any kind of closing agreement possible?

Len Raphael
Oakland CA
 

#2
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My experience when needing to deal with similar situations is to file back 6 years.

Pull the IRS account transcripts for all years to see if an SFR has been filed by the IRS and if so - is it correct. The IRS does not always get that right.

As your aware, the FTB could have very well finalized an NPA for some of the prior tax years that you'll need to find out about.

Could be that the IRS/FTB does not have current addresses so notices may be out there - just not yet received.
 

#3
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Appreciate the response.

Taxpayers haven't moved in twenty years.

Oddly no SFR was filed by the IRS for any year including the years for which Wage and Income transcripts are not available.

But yes, the FTB did file a Notice of Proposed Assessment for 2015 which was probably paid by taxpayer because no notices from the FTB after the initial one. Taxpayer "doesn't recall" if paid. (love the way ancient Watergate hearing phrases have entered common usage)

I'm more concerned w the FTB than the IRS. btw, a recently retired IRS field auditor (small biz) was telling me that his manager used to tell him only go back 3 years unless there are large underpayments or indications of unreported income._

Wont qualify for first time penalty abatement even if he filed 2007 and 2008 because of some penalty for 2005. The unpleasant part is asking for reasonable cause for some of the recent years where previous cpa inexplicably sat on the returns for over two years. emails from the cpa apologizing for delays. oy veh.I'll have the guy's tax attorney write the reasonable cause abatement request.
 

#4
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Question - 3 years for IRS or FTB?

Sure that at some point Mcash and/or Skassel can provide good info in this area based on their experience as prior RA's.

Add the client to your MyFTB account and look up what is there for them - FTB processes POA's rather quickly as well if you need to take it one step further.

You can also call the FTB hotline - they can provide very good info/guidance as to what they are going to be looking for.
 

#5
skassel  
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FTB would have already done their version of an SFR called a filing enforcement for the very old years. If they haven't done so by now, they definitely won't be doing them. I see no reason to go back more than 6 years other than for the refundable credits for either IRS or FTB. Feel free to get in touch with me if you would like to talk more.

BTW, the ONLY FTB location in the entire Bay Area is in the state building on Clay St. in Oakland. It's rather absurd. FTB used to have locations in San Jose & San Francisco, but those were closed in recent years. FTB has become even worse than IRS in keeping taxpayers and tax pros from seeing them in person. Can you imagine that the SF Bay Area with a population of more than 7,000,000 has 1 FTB office. Southern California is just as bad with 3 offices for a population of more than 25,000,000.
Steve Kassel, EA
 

#6
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Steve,

The FTB couldn't even give me account activity going back more than a few years. Said I'd have to request in writing and no guarantees they could retrieve the info. Surprised me that they couldn't go back as far as the IRS.

There's gotta be some advantage to living in Oakland, ease of access to FTB and weather are the only things that come to mind. And I've lived here 40 years and raised kids. Most of the public schools are not fit for human consumption and the potholes are legendary.

I made one attempt to upload poa's to the FTB for this client and they eventually were rejected because the signatures "appeared" to be "machine generated" or some such. I knew from experience that I couldn't use my usual SignNow method of getting taxpayers to hand draw their signatures for FTB poa's, so i had asked the taxpayer to hand sign them. So what he had done was sign them with a cursive font on his PC, using the same font for both he and spouse. Duh.

Just recently, I had an IRS Practitioner Hotline person reject a (CORRECTION from 4868) 2848 that was hand drawn, SignNow. She said that was long standing policy but other Hotline people after that said they never heard of that rule.
Last edited by lenraphael on 23-Aug-2019 8:42pm, edited 1 time in total.
 

#7
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hmm

Just recently the FTB practitioners hotline (very helpful) provided me with copies of NPA's (they mailed them to me) for 2007 and 2008 for a client with similar issues so I am not sure of the reasons why you had problems.

When processing POA's - one needs to do it the old fashion way - no short cuts trying to use new technology. Have them sent to you with real ink and then should not have the issues your having.
 

#8
Andrew  
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I have a non-filer for a 1041. Client is trustee and beneficiary of 1041. The trust was set up for someone who died in 2016 (Special Needs Trust. How far back to file for these returns? Trust started in 2004. So final return would be 2016. I was able to get transcripts from the IRS as far back as 2007, I believe. Much to my surprise client received a notice in 2005 and then the IRS left him alone.
 

#9
EADave  
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All great replies; just throwing in IRS Policy Statement In case anyone wanted the IRS official stance:

Policy Statement 5-1333 from IRM 1.2.14.1.18 (08/04/2006)
“Normally, application of the above criteria will result in enforcement of delinquency procedures for not more than six (6) years. Enforcement beyond such period will not be undertaken without prior managerial approval. Also, if delinquency procedures are not to be enforced for the full six year period of delinquency, prior managerial approval must be secured.”

I have a client coming to see me Monday; hasn’t filed since 2002. We will start with 2013 and go forward. Every single return would’ve resulted....in a refund. What....a....shame.
 

#10
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Thanks EADave for posting that info.

Just an fyi as to why I was working back further than the needed 6 years which is why I requested the NPA's from the FTB for 2007 and 2008. There were other issues that needed to be dealt with besides filing tax returns back to 2006 and the NPA's provided me with W-2/1099-R information that I needed to document which the client no longer had in his records.
 

#11
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Good stuff. Thanks all greatly.

As side note, when i called IRS Hotline a couple of months ago re this taxpayer and resubmitted the 2848 poa's with manual signatures, I asked if first time penalty abatement was available for any year. After the IRS rep ran her tool, she said that 2006 (last year filed) was available for ftpa of about 5k.

I'm mystified how or why ftpa could be claimed for a refund on something past the statute of ltds on refunds. Was the IRS rep correct that it could be claimed for refund?

And if an ancient penatly could be abated, would the IRS do that without every unfiled subsequent year getting filed? ie. 2007 thru 2018?

Len
 

#12
Frankly  
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The penalty on an old year may be abated, but that doesn't mean it will be refunded.
 

#13
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Re the decision as to whether to file for the years that are older than 2013. The years 2007 thru 2012 were most likely overpaid. The balance due years are 2015, 2016, and 2017.

I realize taxes on unfiled returns that were paid more than 2 years ago normally cannot be refunded or applied. But isn't there an administrative exception to that for unusual circumstances similar to reasonable cause on penalty abatement?
 

#14
mscash  
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IRS as a matter of policy will call a delinquent taxpayer back in compliance by filing six years of delinquent returns unless fraud was involved. If they have made an SFR assessment for a year earlier than that, you will have to deal with it. If you can't get wage and information documents because of age then get an IRS account transcript which will have the totals from all the documents that have now dropped off the system. If IRS says the taxpayer had X income in 2000 and y in withholding or estimated tax payments, you can rely on it. I have never seen any policy from the state but FTB generally has a stick up its collective butt. For one client I had to file a 20 year old tax return that hadn't been filed even though tax was zero. There is a subtle but important legal distinction between and IRS SFR assessment and an FTB NPA (Notice of Proposed Assessment) assessment and that is FTB does not file a return of behalf of the taxpayer like IRS does and will demand the taxpayer file regardless whereas with IRS, they have determined a deficiency and given the taxpayer a shot at Tax Court and that is the end of the line. In any later bankruptcy, the IRS assessment will not be discharged because of age because the taxpayer did not file the return (despite what they do later) while the state assessment will be if a return was filed over two years prior because the only return is the one filed by the taxpayer.
 

#15
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Another practitioner pointed me to th code section re statute of limitations. Doesn't look like any wiggle room for my client's reliance on his dead cpa.

IRC 6511(h)

(h)RUNNING OF PERIODS OF LIMITATION SUSPENDED WHILE TAXPAYER IS UNABLE TO MANAGE FINANCIAL AFFAIRS DUE TO DISABILITY
(1)IN GENERAL
In the case of an individual, the running of the periods specified in subsections (a), (b), and (c) shall be suspended during any period of such individual’s life that such individual is financially disabled.
(2)FINANCIALLY DISABLED
(A)In general
For purposes of paragraph (1), an individual is financially disabled if such individual is unable to manage his financial affairs by reason of a medically determinable physical or mental impairment of the individual which can be expected to result in death or which has lasted or can be expected to last for a continuous period of not less than 12 months. An individual shall not be considered to have such an impairment unless proof of the existence thereof is furnished in such form and manner as the Secretary may require.
(B)Exception where individual has guardian, etc.
An individual shall not be treated as financially disabled during any period that such individual’s spouse or any other person is authorized to act on behalf of such individual in financial matters.


There was a time I would have looked up the IRC first, then the regs, then tax editorial materials and maybe a citator and maybe articles. I should go back to that but seems like the regs are so far behind and the IRC so convoluted, what's the point.
 

#16
LW25  
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lenraphael wrote:[ . . .] There was a time I would have looked up the IRC first, then the regs, then tax editorial materials and maybe a citator and maybe articles. I should go back to that but seems like the regs are so far behind and the IRC so convoluted, what's the point.


The point?

Being able to experience the sheer joy of the treasure hunt, right?

;)
:)
 

#17
Frankly  
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"What's the point?"

When the client has the attitude of "what's the point" in filing tax returns for ten years, and "what's the point" in prompting his accountant to do so, then really, what's the point in the new tax pro researching and jumping through hoops to avoid a justly imposed penalty?
 

#18
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my "what's the point" comment was referring to the most efficient to research exceptions to the statute of ltds on refund claims in a tax world where IRS is falling behind generating regs and pronouncements, and the code is hastily written in what seem to be increasingly vague terms. In that context, going to articles, tax treatises/services, and tax pro user groups is more efficient many times.
 


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