Unfiled Tax Returns? A Step-by-Step Guide for Californians

The feeling of dread that comes with unfiled tax returns is a heavy burden. Whether it’s been one year or several, the problem doesn’t go away on its own. In fact, it gets worse.

The IRS and the California Franchise Tax Board (FTB) impose steep failure-to-file penalties and interest, which can quickly spiral into overwhelming tax debt. If you have unfiled tax returns in California, taking action is the only way forward.

This guide provides a clear, step-by-step process to get back into compliance and find peace of mind. The most important thing to remember is that you have options.

The Consequences of Not Filing

Before diving into the solution, it’s crucial to understand the risks of inaction. The government has powerful tools at its disposal, including:

• • Substitute for Return (SFR): The IRS can file a return for you based on information from employers and financial institutions. This return doesn’t include any deductions or credits you’re entitled to, often resulting in a much higher tax liability.
  • Penalties and Interest: The failure-to-file penalty is 5% of the unpaid taxes for each month or part of a month that a tax return is late, up to 25% of your unpaid taxes. Interest also accrues daily.
  • Collections Actions: Unpaid tax debt can lead to federal tax liens, wage garnishments, and bank levies.

– Loss of Refunds: If you are due a refund, you must file a return to claim it within three years of the due date.

Your 5-Step Action Plan to Get Compliant

Step 1: Gather Your Documents

The first step is to collect all the necessary income documents for the years you need to file. This includes W-2s, 1099s, and records of any other income. If you’re missing documents, you can request a Wage and Income Transcript directly from the IRS website for the relevant years. This transcript will show all the income information reported to the IRS under your Social Security number.

Step 2: Prepare the Tax Returns

Once you have your documents, you must prepare the returns for each unfiled year. It’s highly recommended to work with a professional for this step. A California tax resolution attorney can ensure the returns are prepared accurately, claiming all eligible deductions and credits to minimize your tax liability. Do not file the returns just yet—this is a critical part of the strategy.

Step 3: Analyze Your Total Tax Debt

After preparing the returns, you’ll know the total amount of tax, penalties, and interest you owe to the IRS and FTB. This number is the foundation for determining the best resolution strategy. It’s often a shock, but seeing the full picture is necessary to move forward.

Step 4: Explore Your Resolution Options

Simply filing the returns without a plan to pay can trigger immediate collections actions. This is where professional guidance is invaluable. An experienced tax attorney can help you explore options, such as:

• Offer in Compromise (OIC): An agreement with the IRS to settle your tax debt for less than the full amount owed. This is for taxpayers experiencing significant financial hardship.
• Installment Agreement: A monthly payment plan to pay off your tax debt over time.
• Currently Not Collectible (CNC) Status: If you can prove you’re unable to pay your living expenses and your tax debt, the IRS may temporarily halt collection efforts.
• Penalty Abatement: You may be able to have penalties removed if you can show “reasonable cause” for your failure to file on time.

Having a skilled tax attorney negotiate on your behalf provides a crucial buffer between you and the IRS, protecting your rights and working towards the most favorable outcome.

Step 5: File the Returns and Secure a Resolution

Once a strategy is in place, your attorney will help you file the back tax returns and submit the appropriate resolution request (e.g., an OIC application or an installment agreement proposal). This proactive approach shows the IRS you are making a good-faith effort to comply.

Don’t Wait Any Longer

Facing unfiled tax returns is stressful, but you don’t have to do it alone. The team at Kugelman Law specializes in helping Californians resolve complex tax issues.

We can guide you through every step, from preparing your returns to negotiating with the IRS and FTB. Contact us today for a consultation and take the first step toward tax relief.

Disclaimer: This blog post provides general information and does not constitute legal or tax advice. Tax situations are complex and you should consult a qualified professional for advice regarding your individual circumstances.