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Tax Talk with George Saenz

Ask the tax adviser

I haven't filed taxes in 10 years ...?

Dear Tax Talk:
I haven't filed in about 10 years or so, and I want to file now and get it straightened out. What should I do? I have always worked for cash and didn't start keeping good records until last year. I have no W-2s or anything.
Jami

Dear Jami:
The Internal Revenue Service certainly would like to get you back on board, but getting there is not easy. Understand that there is no right answer to your question, but not filing and not paying is certainly against the rules.

Technically, the IRS could request that you file tax returns for all the years that you have not filed. I've seen the IRS satisfied with the last three years to five years of tax returns.

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When faced with a nonfiler with poor records, the IRS generally attempts to reconstruct your income based on your expenditures. For example, if you spend $2,500 a month on living expenses such as rent, food, utilities, transportation, etc., the IRS would assume that you earned at least $30,000 a year. If you also managed to buy a house and save money, the IRS will count the down payment and the savings as additional income.

If some of your living expenses were paid by loans or gifts, both of which are not taxable, you'll need to gather enough credible evidence to reduce your income by these items. Since you've been self-employed, you can offset some of your income with business deductions that may have been counted in the $2,500 I used as an example. Even though you're filing late, you're still entitled to claim legitimate deductions.

Your best bet in getting back on the tax rolls is to meet with a professional who can represent your case to the IRS. I have always found that the IRS is tougher on the taxpayer who represents himself than they would be if he had representation. The money that it will cost you to hire a professional will be saved in taxes and angst.

-- Posted: May 2, 2002

Read more Tax Adviser stories here.
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See Also
File those old returns now!
What to do if you don't get a W-2
IRS notices: what they mean and what to do
More tax adviser stories
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