Retroactive Enforcement

How many years delinquent returns does the IRS expect you to file?

In other words, how far back do you have to go in order to get caught up?  According to the Internal Revenue Manual, it depends on the facts and circumstances, but IRS stated enforcement policy is up to six years. An IRS agent may request returns further back than six years, or may agree to accept fewer than six years delinquent returns. When there is no tax due, the agent appears to have complete discretion and does not need managerial approval to deviate from the stated policy of six years.

If an organization voluntarily files delinquent returns further back than six years, the service will accept them (and will assess penalties accordingly).

I have personally had an IRS representative tell me that he/she normally does not go back more than five years.

Note: Don’t forget that starting with tax years beginning in 2007, failure to file the required return (990, 990-EZ, 990-N, or 990-PF) for three consecutive years will result in an automatic loss of tax-exempt status. As time goes by, the idea of “retroactive enforcement” will be less and less of a concern since all relevant returns will start to fall under the three-year rule.

From the Internal Revenue Manual:

4.75.22.3.1  (08-01-2010)

Extent of Retroactive Enforcement

  1. Enforcement of the delinquency procedures depends on the facts and circumstances of each case. Policy Statement P-5-133 discusses delinquent returns and the enforcement of filing requirements.
  2. Per Policy Statement P-5-133, the enforcement period is not to exceed six years.
  1. The agent may apply shorter or longer periods if such action is in the best interest of the Service, pending management approval.
  1. If the examination involves a plan or trust that has been granted a conditional waiver of the minimum funding deficiency, the extent of enforcement may exceed six years.
  1. The agent should consider:
    1. The taxpayer’s prior history of noncompliance,
    1. The extent of the delinquency,
    1. The effect upon voluntary compliance,
    1. Whether the delinquency involves diverted trust funds,
    2. Whether the circumstances are peculiar to a specific entity, and
    1. Anticipated revenue in relation to the time and effort required to determine the tax due.

4.75.22.3.2  (08-01-2010)

Management Approval

  1. If the enforcement period is less or greater than six years, management approval is necessary. Document the case file to:
    1. Outline the facts of the case, and
    1. Detail the reasons for recommendation of the longer or shorter period.
  1. Management approval is unnecessary if the nonfiler voluntarily files returns beyond the six year period.
    Note:
    Management approval is not required if it is determined, based on taxpayer records, that no net tax would be due for the years under consideration.

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