It’s going to happen. A client sits down and tells you they haven’t filed in two or three years. Maybe longer. Here’s how to handle it.
Step 1: Don’t Turn Them Away Immediately
An unfiled return situation is not automatically beyond your scope. A client who has W-2 income and simply didn’t get around to filing for a couple of years is different from a client with active IRS collection actions, levies, and a Revenue Officer calling them weekly.
Step 2: Get the Facts
How many years are unfiled? What types of income are involved? Have they received any IRS notices? Is there an active lien or levy? Are there prior-year refunds they may have forfeited (the IRS has a three-year window to claim refunds)? These questions tell you whether this is a preparation matter or a resolution matter.
Step 3: Determine Your Scope
If the client has unfiled returns, no active collection actions, and relatively straightforward income, you can likely prepare the missing returns. You’ll need IRS wage and income transcripts for each unfiled year to identify reported income. Prepare the returns based on the transcripts and whatever documents the client can provide.
If the client has active IRS collection actions (CP504 notices, liens, levies, or a Revenue Officer assigned to the case), this has moved into resolution territory. A PTIN-only preparer does not have the authority or typically the expertise to handle IRS collection negotiations. Refer the client to a tax attorney, CPA, or enrolled agent who specializes in tax resolution.
Step 4: Set Expectations in Writing
Use your engagement letter to define exactly what you’re doing. “We will prepare your 2022, 2023, and 2024 federal and state individual income tax returns based on information you provide and IRS transcripts.” Don’t let scope creep.
Step 5: Charge Appropriately
Multi-year filings take more time than a single current-year return. Each prior year requires its own transcript request, its own document gathering, and its own preparation. Price each year as a separate engagement.
Step 6: Know the Refund Deadline
A client has three years from the original due date of a return to claim a refund. A 2022 return due April 15, 2023 must be filed by April 15, 2026 to claim a refund. If the deadline has passed, the refund is forfeited. Let the client know if any refunds are at risk.
For training on handling unfiled returns and recognizing when a situation requires referral, visit musespring.com.