Past Tax Return

[windmill]

Client called today.  The last tax return that I efiled for the client is 2007. Is it best to start with 2017 and go back, or start with 2008.  What is the statute of limitation for this type of case.

Never had this many years to prepare.

[Evan S. Golar]

Start with 2008 first, as there may be carryover issues that go forward. Realize that refunds owed for past 3 years are forfeited.

[Jack from Ohio]

9 minutes ago, Evan S. Golar said:

Start with 2008 first, as there may be carryover issues that go forward. Realize that refunds owed for past 3 years are forfeited.

And... If he owes tax in any of those prior years, he is liable for paying them.  Oldest first.  I always recommend mailing the oldest first, then wait 2-3 weeks and mail the next one.  Prevents confusion at the IRS.

[Catherine]

While refunds older than 3 years are forfeit, on occasion they will apply those amounts to later-year taxes due.  It doesn't hurt to ask.

[Max W]

The IRS enforcement period is 6 years (IRS Policy Statement 5-133 ).  That would mean starting in 2012.  The reason is that the IRS doesn't have the manpower to  handle older returns and they have to draw the line somewhere.  However, there is nothing to stop someone from filing 2011 and prior and some clients choose to do so.   

I have found that if someone hasn't filed for that length of time and the IRS hasn't been all over them, one of two scenarios has usually occured.  One is that, based on the records, the person would either have refunds, or only owe small amounts not making it worthwhile for the IRS to pursue.  The other case is the underground economy where few W-2's, 1099's etc have been issued.   

 

[Yardley CPA]

Does your client have all the data to file for those years?  I assume he does, based on your post.  Maybe it makes sense to call the IRS, explain the situation and see what they want first?  Maybe obtain transcripts from them also?

[Tax Prep by Deb]

7 hours ago, Yardley CPA said:

Does your client have all the data to file for those years?  I assume he does, based on your post.  Maybe it makes sense to call the IRS, explain the situation and see what they want first?  Maybe obtain transcripts from them also?

I had a client in a similar situation last year.  I had her call IRS and when they pulled up her record they told her she was clear as far as their record was concerned.  The state of California on the other hand wanted returns filed even though there was little owed.  California goes after every single penny whereas IRS is a little more lenient.

[Max W]

The State of California is so obsessed with taxes that it has three separate tax departments.  The Franchise Tax Board whose domain is income tax enforcement; the Board of Equalization that handles sales taxes; and the EDD, Employment Development Department, that takes care of collecting  UI and SDI payments.  Each is separate and independent of each other. 

As Deb says, the FTB is very tenacious, like a pit bull that won't let go.  I've had clients that have had to file returns as long as 23 years ago (there is now a SOL of 20 years).  other clients that moved out of CA to a non-tax state and were pursued there because the client had not severed all ties to CA, such as forgetting to have their name taken off the voter registration list, or having a PO Box in CA, or not being able to show proof of having their drivers license, or vehicle reg. in the new state. 

To assess some non-filed returns, the FTB makes up imaginary income numbers.  Sometimes the mortgage interest paid is mulitiplied by 4 and that becomes the income figure, which is then taxable.  Other times, they will take the average income of specific types of businesses, such contractors, insurance sales, etc., and base the assessment on some multiplier of that.   At least the IRS use real numbers for such purposes.

One good thing the FTB has done since the first of the year, is to adopt the IRS National Standards for living expenses in calculating collection potential.

 

 

 

[ADGFINANCIAL]

I'm in NY and usually 3  back years (14,15, 16, & 17) will do just fine.  I tell my client let them ask us if they (IRS or NY) want more.  I can't remember a case where they have come back

asking for additional years.  As Max W. says they just don't have the manpower. 

[Tax Prep by Deb]

On 7/25/2018 at 11:32 PM, Max W said:

The State of California is so obsessed with taxes that it has three separate tax departments.  The Franchise Tax Board whose domain is income tax enforcement; the Board of Equalization that handles sales taxes; and the EDD, Employment Development Department, that takes care of collecting  UI and SDI payments.  Each is separate and independent of each other. 

As Deb says, the FTB is very tenacious, like a pit bull that won't let go.  I've had clients that have had to file returns as long as 23 years ago (there is now a SOL of 20 years).  other clients that moved out of CA to a non-tax state and were pursued there because the client had not severed all ties to CA, such as forgetting to have their name taken off the voter registration list, or having a PO Box in CA, or not being able to show proof of having their drivers license, or vehicle reg. in the new state. 

To assess some non-filed returns, the FTB makes up imaginary income numbers.  Sometimes the mortgage interest paid is mulitiplied by 4 and that becomes the income figure, which is then taxable.  Other times, they will take the average income of specific types of businesses, such contractors, insurance sales, etc., and base the assessment on some multiplier of that.   At least the IRS use real numbers for such purposes.

One good thing the FTB has done since the first of the year, is to adopt the IRS National Standards for living expenses in calculating collection potential.

 

 

 

Actually CA now has a 4th.  Board of equalization has been split in two.  It's a real mess!

[Max W]

Deb, you are right, it has a new name, but its tax collection and enforcement powers are the same.  The new created Office of Tax Appeals encompasses both the newly named body and the FTB.  To add to the confusion, a new software program is being installed and that usually leads to early complications and unforeseen bugs.

[michaelmars]

Even if you prepared all the years file the open years first since penalties are still running on them.  The older years have maxed out the penalties already.  Unless of course the client is prepared to pay all that they owe.    Get an agent involved up front, they might agree to take the current 3 years and forgive all the others.