Almost all U.S. citizens who earn incomes are required to file income tax returns with the Internal Revenue Service on a yearly basis. Although payroll taxes collect an assumed percentage of tax liability from your paychecks, you may find that you owe taxes even after you fill out a tax return. If you are someone who has allowed several years of this type of tax to build up, you may find yourself owing back taxes. The IRS has only a certain amount of time, governed by the statute of limitations, to collect this debt. The statute of limitations are designed to protect taxpayers from shouldering potential lifelong burdens as the result of mistakes in tax reporting, although there is no statute of limitation for those who commit out-and-out tax fraud or fail to file returns at all.
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The income tax was originally created in 1862 as a means to fund the Civil War. Although it was repealed several years later, it returned in the form of the 16th Amendment in 1913. The taxable population originally included only the top earners in the country but slowly grew to include a majority of the population. World War II saw the introduction of payroll taxes and quarterly tax payments. Since then, it has been a requirement of most income earning citizens of the United States to file yearly tax returns. When someone does not file a tax return, they may be subject to penalties. Any tax that was owed but unpaid for a previous year is known as a back tax.
In general, the IRS only has three years to audit your returns. Once it decides that you owe a back tax bill, it has 10 years from the time the first bill is sent out to collect it. If the IRS owes you a refund, you only have three years to claim it after the tax year in question.
A common misconception is that the 10-year collection limitation applies to taxes that have not been filed, but there is no formal limit set for collecting debts from those who do not file their taxes. It is rare, however, that the IRS will require more than seven years worth of paperwork and back taxes to be filed. Once these taxes are filed, you would then have 10 years to pay any back taxes due. The IRS may choose to do a substitute for return (SFR) if you fail to file a tax return. An SFR is a filing that estimates your tax burden based on the information about you that the IRS has on hand. If the IRS files an SFR and it has errors, these can be remedied by filing the correct tax forms for that year.
If you have not filed your taxes, there is a possibility that your records for past years have been lost. The IRS does not keep copies of W-2 forms that have not been filed, but they do offer a transcript of those received for the past 10 years. Form 4506 must be filed along with a payment for each year that is requested. The amount of that payment in 2010 was $57 per year requested.
Many experts agree that the best way to deal with back taxes is through a tax professional or tax attorney. These specialists know how to speak to the IRS and negotiate the best settlements for their clients. If you owe back taxes, the IRS may be willing to settle that debt or extend your filing deadlines. Consulting an expert ensures that you get the best deal possible.