Answer: The IRS requires that the current year tax return and the prior six returns be filed before an offer in compromise is "processable."  Sometimes after you have not filed a tax return for several years, the IRS will prepare what is known as a "Substitute for Return."  This is a very basic return and does not give you all of the tax deductions that you would otherwise be entitled to claim.  They do this because the law requires the IRS to assess the tax against you prior to attempting to collect the tax.  They cannot assess the tax until a return or substitute for return is filed.  Even though the IRS has prepared a substitute for return, that is still not considered a "filed return."  Therefore, you will still need to file any unfiled returns for the last six years. 

So today, in July 2008, what returns are required to be filed?  The current year return (2007) and the previous six years: 2006, 2005, 2004, 2003, 2002, and 2001. 

Tags: irs problems, offer in compromise, unfiled returns