File overdue tax returns

Executive summary for business owners - File all overdue federal and state returns you are required to file even if you cannot pay the tax in full — filing reduces penalties and preserves mitigation options.

Start with payroll (trust) taxes, then federal income/franchise returns, then sales/excise and state filings. Consider voluntary disclosure (state and multistate) for state liabilities to limit lookback and get penalty relief.

Engage a qualified tax professional for complex or multi‑state exposure, or if the IRS/state has already contacted you. 2) Federal (IRS) essentials — what to know - File the missing returns: common business forms include Form 941 (quarterly payroll), Form 940 (FUTA), state payroll deposits, Form 1065 (partnership), Form 1120 (C corp), Form 1120‑S (S corp), Schedule C (sole proprietorship/single‑member LLC), Form 5472/pro‑forma 1120 for certain foreign‑owned SMLLCs.

Extensions only extend filing, not payment. - Penalties and interest: failure‑to‑file penalties generally are 5% per month up to 25% (with statutory variations for partnerships and S corps); failure‑to‑pay accrues separately and interest compounds daily.

First‑Time Penalty Abatement (FTA) and other administrative waivers may apply if you have a clean compliance history or reasonable cause. If you don’t file, the IRS may prepare a substitute return which likely omits favorable deductions/credits and triggers collection. (See IRS penalty relief and filing‑past‑due guidance.) - Payroll trust funds & criminal exposure: Trust Fund Recovery Penalty (IRC §6672) can assess 100% of trust fund (withheld payroll) taxes against responsible persons.

Payroll deposit rules produce separate failure‑to‑deposit penalties that escalate quickly — prioritize payroll taxes. - Collections & alternatives: If you cannot pay in full, apply for the Online Payment Agreement (installment agreement), consider Offer in Compromise where eligible, or request short‑term payment or other relief.

Penalty relief (First‑Time Abate or reasonable‑cause) is available per IRS guidance and can be requested via telephone, Form 843, or by following notice instructions. - Reconstructing records: Use Form 4506‑T/Get Transcript to retrieve past returns/transcripts, collect W‑2s/1099s, bank statements, payroll records, and accounting data.

If records are missing, prepare reasonable estimates supported by bank and third‑party records and document reconstruction steps. 3) Practical step‑by‑step checklist (recommended order of operations) A.

Triage & risk assessment (days 1–7) - Gather all IRS and state notices (do not ignore). Note which agencies/tax types contacted you — prior contact can affect voluntary disclosure eligibility. - Identify which returns are missing (payroll, income, sales/use, excise, information returns like 5471/5472/FBAR/8938).

Prioritize payroll (Form 941/940) and trust fund deposits. - Pull transcripts via Get Transcript and request wage & income transcripts (Form 4506‑T if needed). B.

Immediate filings and interruptions (1–21 days) - Prepare and file delinquent payroll returns and deposit any withheld amounts immediately (or set up an immediate partial payment and submit deposit history).

This reduces risk of TFRP and deposit penalties. - File delinquent income/franchise returns (1065/1120/1120‑S/Schedule C) for the most recent years required by statutes and prepare K‑1s/owner distributions as needed. - File state sales/use returns or register for state accounts where nexus exists; consider voluntary disclosure programs (state or MTC) to limit lookback and penalties.

C. Contact and relief (concurrent) - If unable to pay in full, apply for an installment agreement/Online Payment Agreement or contact the IRS and state DOR for payment plan options.

Consider Offer in Compromise only if facts support acceptance. - For penalties, request First‑Time Abate if eligible or reasonable‑cause relief; follow the IRS notice instructions or submit Form

Executive summary for business owners

2) Federal (IRS) essentials — what to know - File the missing returns: common business forms include Form 941 (quarterly payroll), Form 940 (FUTA), state payroll deposits, Form 1065 (partnership), Form 1120 (C corp), Form 1120‑S (S corp), Schedule C (sole proprietorship/single‑member LLC), Form 5472/pro‑forma 1120 for certain foreign‑owned SMLLCs.

Extensions only extend filing, not payment. - Penalties and interest: failure‑to‑file penalties generally are 5% per month up to 25% (with statutory variations for partnerships and S corps); failure‑to‑pay accrues separately and interest compounds daily.

First‑Time Penalty Abatement (FTA) and other administrative waivers may apply if you have a clean compliance history or reasonable cause. If you don’t file, the IRS may prepare a substitute return which likely omits favorable deductions/credits and triggers collection. (See IRS penalty relief and filing‑past‑due guidance.) - Payroll trust funds & criminal exposure: Trust Fund Recovery Penalty (IRC §6672) can assess 100% of trust fund (withheld payroll) taxes against responsible persons.

Payroll deposit rules produce separate failure‑to‑deposit penalties that escalate quickly — prioritize payroll taxes. - Collections & alternatives: If you cannot pay in full, apply for the Online Payment Agreement (installment agreement), consider Offer in Compromise where eligible, or request short‑term payment or other relief.

Penalty relief (First‑Time Abate or reasonable‑cause) is available per IRS guidance and can be requested via telephone, Form 843, or by following notice instructions. - Reconstructing records: Use Form 4506‑T/Get Transcript to retrieve past returns/transcripts, collect W‑2s/1099s, bank statements, payroll records, and accounting data.

If records are missing, prepare reasonable estimates supported by bank and third‑party records and document reconstruction steps. 3) Practical step‑by‑step checklist (recommended order of operations) A.

Triage & risk assessment (days 1–7)

- Identify which returns are missing (payroll, income, sales/use, excise, information returns like 5471/5472/FBAR/8938). Prioritize payroll (Form 941/940) and trust fund deposits. - Pull transcripts via Get Transcript and request wage & income transcripts (Form 4506‑T if needed).

B. Immediate filings and interruptions (1–21 days)

- File delinquent income/franchise returns (1065/1120/1120‑S/Schedule C) for the most recent years required by statutes and prepare K‑1s/owner distributions as needed.

• File all overdue federal and state returns you are required to file even if you cannot pay the tax in full — filing reduces penalties and preserves mitigation options. Start with payroll (trust) taxes, then federal income/franchise returns, then sales/excise and state filings. Consider voluntary disclosure (state and multistate) for state liabilities to limit lookback and get penalty relief. Engage a qualified tax professional for complex or multi‑state exposure, or if the IRS/state has already contacted you.
• Gather all IRS and state notices (do not ignore). Note which agencies/tax types contacted you — prior contact can affect voluntary disclosure eligibility.
• Prepare and file delinquent payroll returns and deposit any withheld amounts immediately (or set up an immediate partial payment and submit deposit history). This reduces risk of TFRP and deposit penalties.
• File state sales/use returns or register for state accounts where nexus exists; consider voluntary disclosure programs (state or MTC) to limit lookback and penalties. C. Contact and relief (concurrent)
• If unable to pay in full, apply for an installment agreement/Online Payment Agreement or contact the IRS and state DOR for payment plan options. Consider Offer in Compromise only if facts support acceptance.
• For penalties, request First‑Time Abate if eligible or reasonable‑cause relief; follow the IRS notice instructions or submit Form

Keep documentation supporting reasonable cause. D. Reconstruction and documentation - Reconstruct income with bank statements, invoices, payment processors, third‑party statements (Stripe, PayPal), payroll provider records, and vendor statements. - Prepare schedules showing methodology and retain supporting evidence for each reconstructed item. E. Follow‑up and monitoring (ongoing) - Monitor account transcripts for processing and notices (IRS processing can take weeks). Respond promptly to IRS/state correspondence and preserve proof of filing/payments. - Normalize bookkeeping and payroll processes to prevent recurrence; consider payroll service/EFTPS for deposits.

State‑specific resources & voluntary disclosure overview (how states differ) - Multistate voluntary disclosure

The Multistate Tax Commission (MTC) facilitates a National Nexus Program (NNP) VDA process for many member states; MTC can be used to approach multiple states and limits lookback periods for participating states. Participating states and lookback charts are provided by MTC; use MTC to coordinate multi‑state cleanup. - State variation examples (representative): - Washington: updated VDA program (2025) — lookback generally 4 years plus current year; some penalties may be waived (up to 39% itemized in guidance); special VDA streams for investment income and international remote sellers. (Useful when the business had nexus in WA.) - Wisconsin: VDA for unfiled returns; interest and penalties can be reduced; specific filing windows (returns generally due within 90 days of a signed settlement agreement). Contact information and procedures listed on DOR page. - Iowa: VDA available for many tax types; eligible taxes and application guidance provided; MTC multistate option may be recommended for multi‑state exposure. - State programs vary in lookback (commonly 3–4 years; some states extend to 7 years for discovered noncompliance), whether sales tax collected but unremitted receives unlimited lookback, whether registered taxpayers qualify, and the degree to which penalties are waived. Always check the state DOR VDA page and consult counsel before submitting identity or returns — many states allow anonymous pre‑filing discussions via intermediaries. - Suggested search terms per state: '[State] delinquent business tax returns', '[State] voluntary disclosure program', '[State] file late business return', '[State] unfiled returns VDA'. Prioritize the state's Department of Revenue tax compliance/voluntary disclosure page and the MTC lookback chart for multistate issues. 5) Practical tips for LLC founders and small business owners - Entity filing basics: Single‑member LLC default taxed as disregarded (Schedule C for owner) unless election to be taxed as S or C corporation (Form 2553 for S corp election; Form 8832 for C corp election). Multi‑member LLCs generally file Form 1065 (partnership) and issue Schedule K‑1s. - S‑corp election consequences: S corp requires Form 1120‑S; owners must report K‑1 income on personal returns and pay self‑employment/Medicare taxes via payroll. Late K‑1s can delay owner filings — prioritize entity returns if K‑1s are required. - Payroll tax priority: Payroll withholding taxes are trust funds — prioritize filing and depositing payroll taxes first to reduce exposure to TFRP. - Sales/use tax and nexus: Sales/use obligations can cause state exposure even for remote sellers after Wayfair; collected but unremitted sales tax may face extended or unlimited lookback in many states — address sales tax quickly. - Informational filings: Don’t forget information returns and foreign disclosures (Form 5472 — large penalty for missing; FBAR, Form 8938). Missing these can carry large statutory fines even when income tax liability is small or zero. 6) When to engage professionals and red flags - Engage a CPA/EA when you need accurate returns prepared, reconstructed records reconciled, or to negotiate installment agreements/some penalty relief. Use an enrolled agent (EA) or CPA for representation before the IRS; use Form 2848 to authorize representatives. - Engage a tax attorney when there is potential criminal exposure, willful evasion, large international reporting exposure, or when you need attorney‑client privilege for voluntary disclosure strategy. - Use specialized tax resolution firms cautiously; verify credentials, ask for references, and avoid firms that demand full upfront payment without documented plan. Red flags: guarantees of full penalty elimination, demands for cash‑only payments, or promises to stop collection without filing required returns. 7) Recent changes / alerts through Jan 3, 2026 (notable items) - Washington DOR updated its VDA program in 2025 (reduced lookback to 4 years plus current year in many cases; new temporary/targeted VDA streams announced for investment income and remote sellers). States continue to refine VDA terms post‑Wayfair enforcement expansion. - IRS pages on penalty relief and administrative waiver (First‑Time Abate) were updated in 2024–2025; the IRS continues to emphasize use of payment plans and administrative relief options. Multistate VDA procedures and lookback charts were refreshed by the MTC (2023–2024) and remain a primary tool for multistate cleanup.

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