Filing prior-year returns is more complicated than it looks, and taxpayers would benefit from the help of a qualified tax pro. During the 2025 tax season, taxpayers and tax professionals will file over 180 million individual and business income tax returns. Most tax filings will be for the 2024 tax year, but tax season is also a reminder to many taxpayers to “catch up with the IRS” if they have not filed all their required prior-year returns.

Each tax season, the IRS receives millions of prior years’ returns from taxpayers getting back into filing compliance with the IRS.

For many reasons, prior-year non-filers need a tax professional to help with filing an accurate return and dealing with potential IRS issues from late filing. 

First, the late filer likely needs prior-year tax knowledge, software and tax forms to file the back returns. Second, they may have to “rebuild” their old tax records and need a tax pro to help them obtain and sort out what is needed to file an accurate return. Lastly, they may fear the IRS and need to know if they are in trouble – especially if they owe on a prior unfiled year.

Tax pros can add their expertise and assistance through six critical actions that will help successfully prepare and file prior year returns:

1. Determine how many back years needed to file. IRS Policy Statement 5-133 generally defines “filing compliance” for individual taxpayers to be the current and past five years of returns. On Jan. 1, 2025, most individual taxpayers must file 2019-2024 returns to be considered “filing compliant” by the IRS. There are several exceptions to this rule, including business taxpayers. However, many taxpayers are very much unaware of this rule and overwhelm themselves (and potentially cause unneeded tax debt) by trying to file many returns that the IRS is not requiring or requesting. Tax pros can confirm what returns are unfiled to avoid filing more or less than what is required by the IRS.

2. Obtain information from the IRS to help file an accurate return. To identify many income sources, the tax pro can obtain the client’s IRS Wage and Income Transcripts, which report their information returns (W-2s, 1099s, etc.) to the IRS. This step helps the client rebuild their tax records, but it also helps avoid additional IRS scrutiny if the filed return does not match the IRS Wage and Income Transcripts. A discrepancy with the filed return versus IRS reported income information will likely result in IRS inquiries to the accuracy of the return. The IRS can also provide the tax pro any special filing instructions on the late return resulting from IRS non-filing enforcement. The tax pro can contact the IRS to determine if the IRS has started enforcement through the substitute for return process (where the IRS files a return for the taxpayer) or local enforcement. If enforcement exists, specific steps must be taken when filing the return with the IRS compliance unit.

3. Prepare and file returns, including e-filing if available. Using DIY software to file prior year returns can be very confusing to most taxpayers. In fact, most DIY tax software will not allow taxpayers to e-file prior year returns. Tax pros usually have prior year tax software and knowledge to file an accurate return. If no enforcement is present, they can also e-file the prior two years of returns. The tax pros can also use the unmasked IRS Wage and Income transcripts received from the IRS as a head start to matching the filed tax return with income reported to the IRS.

4. Confirm IRS acceptance of the prior year return. The common misconception is that once a return is filed, the IRS accepts it. This is especially not true for prior year returns. The IRS screens the returns or accuracy, matching it with the income reported to them for any discrepancies. They also match other items, like proper reporting of Marketplace health care coverage and credits. Prior year returns can also be flagged for potential identity theft or audit. Paper filed back returns can also take several months to process and accept, meaning you need to monitor the returns to acceptance. Tax pros can use transcripts and periodically contact the IRS (Practitioner Priority Service) for the status and reconcile any open issues.

5. Help with penalty relief. Balance-due, prior-year returns will incur failure to file and pay penalties. Tax pros can evaluate and request first-time penalty abatement or reasonable cause relief for the taxpayer and potentially save them from costly penalties.

6. Get into an agreement on any balance owed to avoid collection issues. Balance-due filers face the next step: how do I pay? To avoid IRS collection actions such as liens and levies, the taxpayer must pay the balance in full or get into a collection alternative such as an extension to pay, payment plan or a hardship alternative such as not collectible status or an offer in compromise. Here, tax pro involvement is essential to help the client evaluate their best options and avoid IRS enforcement actions.

Tax season always brings tax professionals opportunities to file back returns for clients. In the 2025 tax season, tax pros should see more prior-year filers than ever due to very low past non-filer enforcement. 

IRS data shows, from 2015-2019, it knew of more than 50 million individuals who had a filing requirement, but did not file a return. The IRS is also aware of tens of millions of unfiled business returns. The IRS is also aware that the non-filing tax gap is growing at an alarming rate. Last year, the IRS restarted non-filing notices, after several years of inactivity. With more enforcement and the growing number of non-filers, tax pros will be called on this season to help their clients with back-returns and get them back into good standing with the IRS.

Form 7217, Partner’s Report of Property Distributed by a Partnership, helps the IRS determine the basis or adjusted basis in a current property distribution in order to fight tax avoidance through basis-shifting transactions. The form is not required for all distributions, so you need to know when it should be filed, the information to be reported and how it is reflected on a partner’s income tax return.

Below, you’ll find a few of the top questions from a recent webinar on the topic and their accompanying answers. If you choose to attend the on-demand version of this webinar, you can access the full recording and the entire list of Q&As.   

Q: Will a cash distribution qualify as property distribution?

A: No, property is items such as real estate or equipment. However, cash is not just an amount of money received. For instance, a decrease in a partner’s share of partnership liabilities is considered a distribution of cash to the partner. Cash also includes marketable securities. See §731(c) for details.

Q: Are partners’ guaranteed payments considered distributions as well?

A: No, they are not. The form’s instructions remind taxpayers - “do not file Form 7217 for payments to you for services other than in your capacity as a partner under §707(a)(1) or for transfers that are treated as disguised sales under §707(a)(2)(B).”

Q: If a partnership distributes cash (money) and real estate property to a partner on the same day, do you need two Forms 7217?

A: No, as seen on Form 7217, distributions made on the same day that consist of both cash and property are reported on the same Form. In Part 1, cash distributions are reported on Line 5a (December 2024) because they reduce basis FIRST as part of the ordering rules of §1.704-1(d)(2). The property is then reported on the form.

Q: If this is a liquidating distribution, is the calculation and reporting of gain handled differently?

A: Although the treatment of liquidating and current distributions is similar, one major difference exists. In both types, cash distributed that exceeds the partner’s outside basis results in recognized gain. In a liquidating distribution only, taxable loss can also be recognized under certain circumstances.

To learn more about navigating the rules and responsibilities of the new Form 7217, you can watch our on-demand webinar. NATP members can attend for free, depending on membership level! If you’re not an NATP member and want to learn more, join our completely free 30-day trial.

As the 2025 tax season ramps up, a troubling new scam is targeting taxpayers: fake text messages impersonating the IRS. These fraudulent texts falsely promise economic impact payments (EIPs), also known as recovery rebate credits, in an attempt to steal sensitive personal information. Tax professionals are uniquely positioned to educate and protect clients from falling victim to these schemes.

The scam at a glance

Scammers are exploiting the promise of financial assistance by sending texts that claim to be from the IRS. These messages often include links to malicious websites or requests for personal information, such as Social Security numbers or bank account details. It’s important to remind clients that the IRS never communicates about EIPs or other sensitive matters via text.

“The rise in tax-related scams is troubling, especially when taxpayers are targeted during times of financial uncertainty,” said Scott Artman, CPA, CGMA, and CEO of NATP. “We urge taxpayers to stay vigilant and to consult trusted tax professionals who prioritize accuracy and integrity.”

How to spot an IRS text scam

Encourage clients to watch for these red flags:

• Unsolicited text messages: The IRS does not send text messages for economic impact payments or other tax-related matters.

• Suspicious links: Any URL that does not end in “.gov” should be treated as suspicious.

• Requests for personal information: The IRS will never ask for Social Security numbers, bank details, or other sensitive information via text.

What clients should do if they receive a scam text

Provide your clients with a simple action plan:

1. Do not respond: Reassure clients that ignoring the message is the best first step.

2. Avoid clicking links: Scammers often use these links to steal information or install malware.

3. Report the message: Advise clients to report the scam text to the appropriate authorities or the IRS hotline.

How tax professionals can help

Tax professionals play a vital role in protecting clients from scams by staying informed and sharing best practices. Educate clients about common scams during appointments, include reminders in newsletters, and provide them with resources to verify legitimate IRS communications.

Stay vigilant this tax season

Scams like these can undermine taxpayer confidence and lead to costly consequences. By staying proactive and providing clear guidance, tax professionals can help clients navigate the 2025 tax season safely and with peace of mind. Anyone who receives the message can report it to the U.S. Treasury Inspector General for Tax Administration’s office.