Missing Records

It occurs frequently that taxpayers do not file tax returns for one or more years because they are missing all or a portion of their records.

There are several ways to approach the problem of missing records.

First, the I.R.S. maintains a file going back at least 6 years of all W2's, 1099's and 1098's (mortgage interest paid) filed in the name of individual taxpayers.

For years 7 or more years back it is possible in some instances to retrieve missing records by filing Form 4506 - Request for Copy of Tax Return. There is a fee of $57 for each year requested and if there is no return on file you may not be able to get the income data sought.

Second, Tax Matters can determine certain facts from Master File Transcripts, available for the asking for those years where the IRS has prepared a Substitute For Return. These 'records of account' provide Adjusted Gross Income, Taxable Income, Tax, Number of Exemptions, Filing Status and Self Employment Tax. From that it is often possible to prepare a proper tax return. Only where assets have been sold and the cost is not known, will there normally be any problem, and cost must be determined to minimize the tax.

Third, missing business records can be determined in many cases by obtaining copies of bank statements for years past, as well as credit card statements.

Often it does not matter what an expenditure is for in order to make it tax deductible.

For example, the taxpayer may have a copy of a 7-year old bank statement.

Let us say the taxpayer operated a small business and all receipts and expenditures were recorded in this bank account. Certain payments, rent for example, almost always are for round amounts and as they occur each month it is easy to spot them. The taxpayer will remember that payments to Smith Brothers were for material and even though the checks are missing very often individuals will remember amounts for larger items.

Remember, these old years' returns that were not filed were not usually in connection with a business that was making money. If the business were making money the taxpayer would have had enough money to get a bookkeeper and to file tax returns. Thus, estimates or educated guesses that show the taxpayer was losing money should not be avoided merely because of missing or incomplete records. It is probably the truth as such the tax return is not fraudulent and is the best estimate that can be made under the circumstances.

In summary, generally, one way or the other, Tax Matters can prepare old returns using various substitute sources when there are missing records. Those returns should be filed as soon as possible in order to avoid accumulated compounding of interest.

Also, it should be noted that if returns have not been filed in the most recent three tax years, those returns should be prepared immediately in order to claim any refunds that may be due.

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