I have not filed my business tax returns or my personal income tax returns in about five or six years / Failed to file taxes?

Dan Henn writes: Question: I have not filed my business tax returns or my personal income tax returns in about five or six years. I have not received any notices, but what should I do?

Answer: You would be surprised how many people are actually in this situation. Some people just don’t think about it, some people actually choose not to file, and yet others have legitimate reasons such as dealing with personal matters or family health issues. But no matter what your reason, it is always recommended to file any delinquent returns as soon as possible. If you do not file a return, the statute of limitations never runs out, and therefore does not expire. Also, it is possible that the IRS could open a criminal investigation for tax evasion and say you are negligent and willfully not filing your returns.

I have dealt with dozens of people in the past couple of years who are in this situation.
In regards to your business return, if it is a pass-through entity (partnership or S-corporation), there is currently a penalty for filing a return late. The penalty is $195 a month (and part of a month) per partner or shareholder that the return is filed late. (Note: this penalty came into being at $85 a month for 2008 tax returns for S corporations and used to be $50 a month for partnerships). This will be assessed for each return that is filed late starting in 2008.

If you are an LLC filing as a sole proprietor or just a sole proprietor filing a Schedule C on your individual return, then penalties only exist if you have a tax due amount on your return. If your individual return is filed late and you owe, then the IRS will assess a late filing penalty of 5 percent a month (which includes part of a month, but not to exceed 25 percent), late payment penalty of .5 percent a month (not to exceed 25 percent) and interest (which has been 3 to 4 percent during the past couple of years).

It is important to know that if you are due a refund on your individual return and it is more than three years old, you will not receive that refund. So it is important that you file your returns within that time. As of now, you can only get a refund for your 2010 return to the current year.

If you find yourself in the situation where you have not filed your tax returns in a number of years....it's time to contact a Certified Public Accountant / CPA for professional help.