Falling behind on tax returns can be stressful, and you might not know where to turn. Luckily, the IRS 6-Year Compliance Rule makes catching up more straightforward than most people think.
In most cases, this guidance means you only need to file the past six years to get back in good standing, no matter how far back the problem goes. Put simply, the policy is designed to simplify the process for non-filers and make it easier to move forward.
In this guide, we’ll break down how the 6-Year Compliance Rule works, why it’s important for getting back into compliance, and when it might make sense to file more or even fewer years. We’ll also cover the pros and cons of going beyond the six-year mark.
If you’re overwhelmed with unfiled returns, the experienced attorneys at Wiggam Law can help you achieve compliance and avoid harsh IRS penalties.
Key Takeaways
- The IRS only asks for the last six years of unfiled tax returns to get you back on track.
- You usually don’t need to file anything older, unless it could help in your situation.
- The 6-Year Compliance Rule is an IRS guideline, not a law, and the IRS can request additional years if it chooses.
- Sometimes filing more than six years can work in your favor, such as resolving state tax issues, claiming a refund, or reducing penalties.
- At Wiggam Law, we guide you through the entire process, ensuring your rights are protected and your returns are prepared accurately.
What Is the 6-Year Compliance Rule?
The IRS 6-Year Compliance rule is an administrative guideline requiring taxpayers to file the last six years of returns to restore compliance. If you’re behind on your taxes, it means you may only have to file years’ worth of tax returns to be considered compliant with the IRS.
The guideline is based on an internal IRS policy. It comes from IRS Internal Revenue Manual § 4.12.1.3, which guides how the agency resolves cases with non-filers. However, it’s not a legal requirement. Since this is only a guideline, the IRS has the discretion to ask for more years of returns.
Sometimes, the IRS will request more than six years of tax returns. In particular, if they suspect fraud, notice a significant amount of unreported income, or spot anything unusual, they can ask you to go back and file additional years. Keep in mind that compliance works on a case-by-case basis. The number of years you have to file can often be negotiated, based on your specific circumstances.
If you’re not sure how many years you need to file, Wiggam Law can review your situation and recommend the most efficient path to compliance.
Why the 6-Year Compliance Rule Matters
Understanding the 6-Year Compliance Rule could be essential to getting your taxes back on track. In the following section, we break down why this guidance matters.
Restores Filing Compliance
If you’re behind on filing your taxes, getting caught up is essential in protecting yourself and your finances. This move can protect you from criminal charges for willful failure to file.
Helps You Qualify for Payment Plans or Settlements
Filing for the last six years also opens the door to IRS programs, such as Installment Agreements or Offers in Compromise. Most of these programs require you to file the last five or six years before the IRS will approve your application.
Prevents Substitute for Returns
If you don’t file your tax returns, the IRS may file a substitute for return on your behalf. That often overstates your tax liability and opens the door for the IRS to start involuntary collections. If you file proactively, you have more control over how much tax you owe.
Keeps Your Rights Intact
One of the biggest reasons that compliance matters is that it protects your rights as a taxpayer. Without a filed return, you can’t challenge the IRS’s numbers or work out a settlement. Filing gives you a seat at the table and a say in the outcome.
Allows You to Claim Refunds
If you’re owed a refund from the IRS, you’ll need to act fast. You have three years from the original due date to file and claim it. If you wait longer, that money could be gone for good.
Starts the Clock on the Statute of Limitations on Assessments
Most of the time, the IRS can’t assess additional taxes for returns more than three years old. But there are exceptions. For example, if they suspect fraudulent returns, or more than 25% of your income is left unreported, the IRS can extend the assessment period to six years or longer.
However, this clock only starts ticking once you file. If you have unfiled returns, the IRS may review that year and assess tax against you at any point.
At Wiggam Law, we help taxpayers quickly get back in compliance and protect their income and assets from the IRS. We also help you navigate the guidance and move forward with confidence.
When Filing More Than Six Years May Be Beneficial
If you’ve failed to file taxes for more than six years, you may be concerned about whether you should go further back. The 6-Year Compliance Rule is the standard guidance. However, there are situations where going further back can work in your favor. Let’s break that down:
Complying With State Tax Requirements
It’s important to check your state tax rules. Some states require extra years of returns before they consider you compliant. In some cases, you may need to file more years of state taxes, and you may need to file your federal returns in order to complete your state returns correctly.
Fixing Substitute for Returns
Sometimes the IRS files a “substitute return” for you, which often comes with a higher tax bill than you actually owe. Filing the real return, even if it’s older than the six-year mark, can lower your balance and stop extra penalties from piling up.
Claiming Losses
If you have business losses or certain investment losses, you may be able to roll them into future years. In those situations, it may help you to file returns older than six years if they can help you reduce your balance due.
Of course, not every situation calls for filing extra years, and so it’s important to do your research. A tax attorney can look at your case and determine whether those extra returns could save you money or protect your rights. At Wiggam Law, we help clients determine when going beyond six years makes sense, and we handle the process to ensure it’s done right the first time.
When You Don’t Need to File All Six Years?
On the flip side, there may be cases where you don’t need to file all six years of returns. For example, if you were not required to file one year, and that return doesn’t provide a refund or a loss that you can carry forward, there’s probably no need to file that year.
However, you may need to prove to the IRS that you didn’t need to file that year. A tax attorney can help you navigate this situation.
The IRS’s Perspective on Compliance
Now that you know the basics, let’s take things one step further in understanding the IRS’s perspective on compliance. Here’s what you need to know.
How the Six-Year Standard Works
The Internal Revenue Manual (IRM) states the IRS usually considers a taxpayer back in compliance after six years of filed returns. However, it’s not a hard and fast rule. Agents can require more or even fewer years, depending on your circumstances.
High-Income Non-Filers Get More Scrutiny
The IRS puts extra focus on taxpayers with high incomes who haven’t filed, especially if there’s a large amount of unreported income or suspected fraud. These cases are more likely to face audits and aggressive enforcement.
Rebuilding Trust With the IRS
Falling behind on your taxes can happen for many reasons. But once you’re back in compliance, filing on time every year helps rebuild your credibility. Consistently filing on time lowers your risk of future audits or collection actions. Wiggam Law can help you meet the IRS’s compliance standards.
Expert Tips on How to Achieve Compliance
When you’re behind with your tax files, understanding the first steps is crucial. Here are the main things you’ll need to do to achieve compliance with the IRS:
- Gather your records. Start by collecting as many tax documents as you can for the last six years. You may need to go back further if you’ve been behind for a longer period.
- Recreate missing information. If you can’t find all your paperwork, a tax professional can help recreate your income and deductions using bank statements and other records. Filling in the gaps will help bring your filing up to speed and mean you’re compliant.
- File accurate returns. Next, you’ll need to report all of your income, including the deductions you qualify for. This helps avoid extra penalties or unwanted IRS attention. You should also make sure your returns are 100% accurate to avoid further action.
- Explore your options. When it comes to settling up, you have options. You may explore an installment agreement, an offer in compromise, or penalty abatement.
Working with a tax attorney can save you time, reduce stress, and ensure you only file the years you need. A qualified expert can also negotiate directly with the IRS on your behalf.
6-Year Compliance Rule Frequently Asked Questions
What happens if I don’t file returns beyond six years?
The 6-Year Compliance Rule generally means the RS won’t require older returns. However, if they suspect fraud or substantial income discrepancies, they may ask you to file for further years.
Can I get a refund for older returns?
Unfortunately, this is not possible. IRS refunds are only available for returns filed within three years of their original due date. If you want to make sure you’re eligible for refunds, it’s smart to stay on top of filing your taxes.
What is the statute of limitations for the IRS to assess taxes?
Typically, the statute of limitations for assessing taxes is three years from the later of the filing deadline or the date you filed. However, this is extended to six years in cases of significant underreporting or indefinitely for fraud. If you don’t file, the clock never starts.
Can the IRS still collect taxes from more than 10 years ago?
No, not usually. The IRS typically has 10 years from the date of assessment to collect. However, some events, such as bankruptcy, can pause and extend the time clock.
What if I can’t locate records for older years?
If you can’t find your records for previous years, don’t panic. A tax attorney can help reconstruct missing records using IRS transcripts or third-party sources. Contacting a professional is the best way to make sure you’re compliant with IRS guidance and protect yourself.
Get Help With Unfiled Returns Now
Do you have more questions? Schedule a consultation with Wiggam Law for clear, expert advice on resolving your tax issues. No matter your circumstances, our expert team can help you navigate your tax compliance issues.
If you’re behind on your taxes, the 6-Year Compliance Rule works in your favor. Filing the last six years of returns is the standard for bringing non-filers into compliance. However, additional years may be required or beneficial in specific cases.
Making sure you’re compliant with the IRS guidance helps you to avoid severe penalties, but it doesn’t end there. This also unlocks opportunities to resolve tax debts, get any refunds, and preserve your taxpayer rights.
Wiggam Law’s experienced tax attorneys are here to guide you through the compliance process, protect your rights, and resolve your tax issues effectively. Call us at (404) 233-9800 or schedule your consultation today.
