There are a number of reasons why a taxpayer may have failed to file taxes in previous years. Sometimes it is for fear of what they will owe; other times personal matters may have taken too much time and filing taxes is the last thing on their minds. No matter what the reason is, there are a number of options to take care of tax returns from multiple years. The choice may depend on the current year's situation.
When You May Owe Taxes From Prior Years
One of the main reasons that people do not file is for fear they cannot pay the taxes owed on the return. If this is the case, understand that the fines and penalties apply to those who fail to file as well as those who fail to pay so one may end up paying both a failure to file penalty as well as a failure to pay penalty for the same return. If the decision to file prior year's returns is made between January and April of a current tax season, remember that it may be best to file the current year's return first, wait for it to be processed and accepted by the IRS and then send in the returns from prior years. If it's after the tax season, you may want to start with the return from the first year that wasn't filed and work your way forward.
When You Anticipate a Refund
IRS refund statutes limit the payment of any refunds after the third year the refund was due. In the current 2010 tax year, any refunds from unfiled returns prior to 2008 will be lost. Most tax payers expecting a refund do not forget to file a return, but perhaps because of personal situations, it just doesn't get done. If a refund is anticipated in a current tax year, file the current year first and await acknowledgement from the IRS that the return has been accepted. At this point then begin the process for filing for prior years. When the IRS receives multiple year returns from the same individual, they tend to slow down processing of current or recent year returns to take a closer look at the returns filed.
Paper Returns vs. Electronic Filing
File either electronically or with a paper return. Some franchised tax preparation offices are not equipped for the electronic filing of prior year returns. E-filing for prior year returns is something that the IRS would like to have in place on a larger scale in the 2010 tax year. It will probably be necessary to file a paper return for each prior year return. If you e-file a current year return, make sure to wait until the return has been processed and the refund received or amount owed has been calculated. Then file a paper return for the first unfiled tax return working forward, ensuring that each return is mailed in a separate envelope with supporting material for each year.
David Roberts has been writing since 1985. He has published for various websites including online business news publications. He has over 11 years experience in tax preparation and small business consultation. He is also a Certified Fraud Examiner. He received a Master of Business Administration from Florida Metropolitan University in 2005.