Although tax season is dreaded by many Americans, it is justifiable. Filing taxes can be a stressful financial matter, and even the most minor mistake can turn into a costly nightmare. For those who have missed filing for several years, the overwhelming fear of back taxes and penalties can be paralyzing. Luckily, there is a well-known IRS rule that has this well-hidden treasure, the six-year compliance rule, which may help in alleviating that burden.
Six-year compliance rule enables tax filers who have fallen out of the maze to catch up without having to sift through decades of more paper. It is an old-time practice at the IRS, and it is neither a loophole nor an official law. But such would help in making it manageable to get back into compliance.
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What does the six-year compliance rule mean?
Six-year compliance rule allows taxpayers to file the last six years of returns to be compliant without going back decades. If you’re delinquent all the way back to 2013, normally you only need to file from that six-year period. Submit six years of returns; most likely, such will put you current, if not entirely compliant.
That is, though, just a guideline; there’s no guarantee with it. The IRS reserves the right to go beyond for fraud, huge amounts of unreported income, or other unusual circumstances. But for the average taxpayer who simply fell behind, six years is the standard.
How does it help people who have not filed tax returns
Catching up on a decade or more worth of taxes is a daunting prospect-and it’s precisely why many people never start. Then again, knowing that you’ll probably only have to file six years’ worth of returns changes things significantly. It no longer has that mammoth repellent quality; it is now quite manageable with the right professional help.
Importantly, to act on one’s own as an individual shows a good faith act to the IRS. Voluntary filing of those six years may protect you from harsher penalties and reduce the risk of an audit. It may even get you access to relief programs such as installment plans or an Offer in Compromise.
There’s one catch, though: refunds. If you’re owed a refund for a year that falls more than three years from the original due date, chances are you’ve lost it. If you owed money for 2016 and didn’t file by 2019, sorry, one more refund is gone. But it is much better to deal with it now than stick around and perhaps face enforcement actions later.
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Can this assist with state taxes, too?
While the six-year compliance rule is unique to the IRS, many states offer their own tax relief or amnesty programs. Every one of these is specific to a state, but in general, it allows a taxpayer to file an erroneous return without facing the full penalty. If you’ve fallen out with state taxes as well, check with your state’s tax agency regarding available options.
The bottom line
If you have unfiled tax returns, don’t lose your mind. This is, however, where the IRS’s six-year compliance rule comes in handy because it offers most people a feasible hope towards good standing once again. Six years’ worth of returns will suffice in most cases. Tax professionals even make it much easier.
Now and again, taking the first step will bring relief, prevent penalties from accruing, and potentially save serious consequences later.
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