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Filing Back Tax Returns

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Until you have “complied” with filing all of your back tax returns, the IRS will not allow you to enter into a settlement agreement.  Compliance also implies that you are having the right amount of federal income tax withholdings from your paycheck if you are an employee or are current on your estimated taxes if you are self-employed.  The IRS is more concerned that you are staying caught up on your current taxes than your back taxes.  After you are caught up with your current year’s taxes, the IRS will allow you to enter into a settlement on your back taxes.

When you are behind on filing late returns, the penalty for the first five months is 5% per month.  That is a total of 25% for five months.  Filing an extension and filing the return before the extension deadline protects you against this penalty.  You are no more likely to be selected for an IRS audit because you filed your returns after the filing deadline.