joyfulchristian

Given the field, I have no doubt I'll vote for Fred Thompson in the primary

Sarah, consider yourself warned. I'm about to talk taxes. On the other hand, I'll also be talking Fred Thompson so roll the dice and make your choice. :)

However, I'm not sure what to make of his tax plan yet. The idea of an optional pseudo-flat tax system (it's being called a flat tax, but my understanding is that there are actually two rates plus a capital gains rate) with very few deductions is interesting.  However, unless this is a one time election, it won't make the tax system any less complicated.

If people have the option of using the simplified system every year, then it is in their best interest to calculate their tax under the regular method and the simplified system every year and pick which ever one comes out lower. If you go to a tax preparer, they'll do it for you. (Our software system is very capable of running this type of optimization.) A lot of the do-it yourself packages will be able to do the comparison too.  However, you'd still have to know enough about the regular system to get all the information together. Otherwise, you'll always be wondering if you could have paid less under the other system.

Thompson proposes eliminating the Alternative Minimum Tax. I like this idea. The AMT is cumbersome and catches people unawares. It also tends to catch people who were never intended to have to pay the tax. (This was originally a tax aimed at insuring that the "rich" couldn't take so many credits and deductions that they'd pay no tax. Now it's hitting the middle class.)  But one of the problems with the AMT is that it requires taxpayers to calculate their tax twice under two different systems.

If the opt-in system isn't a one-shot deal, then you're still left with having to compute your tax liability twice. On the other hand, if it is a one-time shot, people are going to pay a lot of money to accountants to try to guess which way is best for them over their WHOLE LIVES.

Overall the idea is interesting, but I'd have to see a lot more information to be sure I liked it. If I see more and think of it, I'll let you know what I think.

Powered by ScribeFire.

Katrina tax bill

Fox News has posted a useful plain-English explanation of the Katrina relief tax bill that President Bush just signed.

Heads up

If you made estimated tax payments during the first 10 days of September and you mailed the check to the IRS in San Francisco, you could have a problem:

A number of checks, most believed to cover estimated taxes from the self-employed, were lost on Sept. 11, when a truck carrying them to an Internal Revenue Service lockbox was involved in an accident on the San Mateo Bridge. Wind blew away an estimated 30,000 pieces of mail, many ending up in the bay.

Taxpayers in Alaska, Arizona, California, Hawaii, Idaho, Montana, Nevada, Ohio, Oregon, Utah, Virginia, Washington and Wyoming are among those who could be affected. The IRS believes most of the missing mail includes estimated tax payments due on Sept. 15, and will waive penalties and interest for anyone whose payment was effected. In the meantime, taxpayers who sent checks to P.O. Box 510000 in San Francisco during the first 10 days of September should wait until October to see if their checks clear before contacting the IRS.

The problem is, of course, since these checks hadn't been processed, the IRS doesn't have any way of knowing whose checks were lost.  Keep your eyes peeled if you made one of these payments.

Katrina related tax bills in the works

Botht the House and the Senate have passed bills designed to provide tax relief for those affected by Hurricane Katrina and those trying to provide relief.  The bills are different though and we don't know what will come out of conference.  All the same, I thought I'd post this list of some of the possible items that are in the bills:

The cuts are designed to give people affected by the hurricane easier access to their retirement savings and to encourage charitable giving. Among other provisions, both versions of the plan waive penalties for victims who withdraw cash from their retirement savings accounts, solidify an earned income tax credit for the working poor, and provide a $2,000 tax break to anyone who houses victims for two months or longer.

Other provisions include:

• The extension of a tax credit for employers who keep workers in the disaster zone on their payroll;
• The elimination of a limitation on casualty losses, making it easier for victims to get a refund of taxes they paid in 2004; and,
• An allowance for survivors to exempt from taxes any debts that are canceled because of the hurricane. Canceled debt is usually considered taxable income.

It looks like we'll see a second bill later, so who knows what all we'll end up with.

Irs grants relief workers extensions

I thought this was cool (Subscription link):

The IRS announced that Hurricane Katrina relief workers have until January 3, 2006, to file any returns and pay any taxes due. IR-2005-103 (9/14/05).

Yesterday, the IRS announced that Hurricane Katrina relief workers have until January 3, 2006 to file any returns and pay any taxes due. According to the IRS, this means that relief workers are entitled to the same extensions that apply to individuals and businesses located in the disaster area. Eligible relief workers should notify the IRS that they are affected by Hurricane Katrina when they file returns or respond to notices or contacts from the tax agency.

For this purpose, the IRS explained, eligible relief workers are those assisting in the disaster area. This includes people affiliated with recognized government or philanthropic organizations and others.

That's  not a bad idea at all.  In related news,  you might not want to try calling the IRS for a while:

Also, in IR-2005-102, the IRS announced that nearly five thousand IRS telephone operators are helping the Federal Emergency Management Agency (FEMA) answer telephone calls from Hurricane Katrina victims. The IRS telephone assisters are taking calls to help people with the FEMA registration process and referring individuals for other essential services like the American Red Cross.

This is certainly for a good cause, but I'm guessing it's going to hamper the IRS's ability to handle their own call load.

I'm loathe to say anything good about H & R Block

... but in this case I'll make an exception.

I've mentioned before that hurricane victims can file amended 2004 tax returns and claim their losses immediately.  Today I see that H & R Block is offering to do those returns for free.

And yeah, I know that I'm not blogging about much of anything except hurricane related tax stuff; I just don't have much to say at the moment and this seems important.

Some more good ideas

There aren't many Democrats in the Senate I have any respect for, but Max Baucus, ranking member of the Finance Committee is one of them.  Here are his proposals for tax relief for Katrina victims (Subscription Link):

• To assist homeowners who take in Katrina victims. Under this proposal, taxpayers would receive half a dependency deduction for each Katrina victim they house for at least 90 days during the tax year. Being claimed as dependent would not affect the victim’s ability, however, to claim their own personal exemptions or dependent exemptions for their children.

• Education tax relief: Room and board, tuition, books and fees provided to students displaced by Katrina will not be included in taxable income.

• Extending WOTC eligibility to Katrina victims. Under the work opportunity tax credit (WOTC), employers can claim a tax credit against wages paid to new workers that face barriers to employment such as ex-felons, welfare recipients, high-risk youth, and veterans. This proposal would add potential workers displaced due to the hurricane to the WOTC eligible list, easing the search for employment. The credit maximum is $2,400 (40 percent of first year wages up to $6,000, or 25 percent of wages if less than 400 hours worked.)

• A payroll maintenance tax credit: Under this proposal, businesses with fewer than 50 employees would be eligible for a 50 percent tax credit to continue paying employees even though the business cannot operate during the hurricane rebuilding period. The credit would max out at $12,000.

He's got some interesting ideas here. I hope some of them pay off.

A couple more good moves from the IRS

I never thought I'd be saying many good things about the IRS, but they have come through with some good ideas related to Hurricane relief:

The IRS has added to the relief previously granted to victims of Hurricane Katrina in IR-2005-84. Hurricane Katrina victims will now have until January 3, 2006, to file any returns, pay any taxes or make any deposits due. Deadlines will run through the end of calendar year 2005, which would be to January 3, 2006, after taking account of the New Year holiday, said Everson. The extension applies to any return, tax payment or tax deposit with an original or extended due date on or after August 29, 2005, and is available in all counties and parishes listed in IR-2005-91.

The IRS also announced that it will abate interest and any penalties for late filing, late payment or failure to make deposits that would otherwise apply. The relief covers the September 15 due date for estimated taxes and calendar-year corporate returns with extensions, the October 17 deadline for individuals who received a second extension of time to file an individual income tax return and the October 31 deadline for filing quarterly federal employment and excise tax returns.

That  boils down to a 3 1/2 month extension for a lot of things.   Here's another good idea:

To further help hurricane relief efforts, Everson and Snow announced that employees can donate vacation, sick or personal leave so employers can make cash payments to qualified tax-exempt organizations that help hurricane victims. The employees do not have to include donated leave in their income, and employers will be permitted to deduct the cash contribution. Employer cash donations must be made before January 1, 2007.

Employees participating in a leave-donation program may not claim a charitable contribution deduction with respect to the value of foregone leave excluded from wages. However, employers will be permitted to deduct cash payments made under such programs as a business expense under Code Sec. 162 if the payment is: (1) made to a charitable organization for the relief of Hurricane Katrina victims; and (2) paid before January 1, 2007.

I don't know if this leave donation thing will catch on, but it's a good idea.

Tax relief for Katrina victims

CCH has a short piece laying out tax options available to disaster victims.

I would only add that the tax code will allow people to deduct losses they incurred in the hurricane.  Unfortunately, there are limitations and only losses exceeding 10% of a persons gross income are deductible.  On the good side, you can choose whether to wait and claim the losses on your 2005 tax return or file an amended 2004 return and go ahead and take the loss now. (The deductible loss will probably be less, but you'll get the money much quicker.)

However, deducting a loss means first knowing what the value of the lost property was.  From what I'm hearing, the normal methods of establishing tax losses may be meaningless in New Orleans and some other areas.  I suspect a special rule will be needed to help these people estimate their losses, but so far no such rule is forthcoming.

Here's a good guide on disaster giving

Accounting Web has a short, but good, article on giving during times like this.

New hurricane related charities will get expedited processing from the IRS

Here's good news for anyone looking to set up a new non-profit to help with disaster relief: (Subscription link)

he IRS announced that it will provide an expedited review and approval process for new organizations seeking tax-exempt status to provide relief for victims of Hurricane Katrina. IR-2005-93 (9/6/05)

The IRS announced that it will provide expedited review and approval for new organizations seeking tax-exempt status to provide relief for victims of Hurricane Katrina. A new organization should apply for tax-exempt status by filing IRS Form 1023, Application for Recognition of Exemption Under Section 501(c)(3) of the Internal Revenue Code. If the organization writes “Disaster Relief, Hurricane Katrina” on the top of the form, the IRS will give it expedited attention. Publication 3888, Disaster Relief: Providing Assistance Through Charitable Organizations provides guidance on the application process.

I'd tend to agree that it's better to set up new programs in existing charities, but if you want to start a new one, more power to you.

Good link

Accounting Web has a good article detailing some of the assistance available for tax and accounting woes caused by the hurricanes from both the IRS and the American Institute of Certified Public Accountants. (AICPA)

Update: Here's some more useful info supplied by AccountantsWorld (registration required):

The IRS, for example, has extended various deadlines, such as that for estimated tax payments normally due Sept. 15, until Oct. 31 and has waived late-filing or late-payment penalties that would otherwise apply. An agency spokesman said the IRS has set up a task force to work out other assistance that might benefit taxpayers in the afflicted areas.

The U.S. Postal Service is focusing on getting Social Security checks to recipients and has set up mobile facilities in Louisiana and Mississippi "for people to be able to come and get their Social Security checks," USPS spokesman Gerry McKiernan said.

The USPS is setting up a "New Orleans" post office at the Astrodome in Houston, where many hurricane refugees have been taken, McKiernan added.

The Social Security Administration is also allowing beneficiaries, many of whom are far from their mailing addresses, to go to any local Social Security office, get their identity verified and receive a check on the spot.

Electronic direct deposit should have been uninterrupted, SSA spokesman Mark Lassiter said, but beneficiaries who are unable to get to their bank or are without their debit card can also get an immediate payment.

I'm glad people are thinking of these things.

Sometimes the IRS gets things right

I'm often critical of the IRS. No surprise really, as I'm a tax accountant.  On top of all the other problems with major bureaucracies, the IRS is often slow to react to the unexpected.  Sometimes, however, they do well.  The IRS has done several things (subscription required) to provide hurricane assistance.

First, victims of hurricane Katrina can call 1-866-562-5227 to get help with tax matters.  You can call this number to get free copies of tax return transcripts (often needed for all sorts of financial aid), to get the ball rolling on tax relief, or to receive disaster loss kits.   Please, if you're not a victim of the Hurricane, don't clog this line.  Don't call it even if you're calling for someone who is a victim.  The IRS is generally not allowed to discuss anyone else's tax situation with you unless you have a power of attorney.

Other things the IRS is doing:

• Waiving the penalty on highway use of died diesel fuel until September 15th. (To help deal with shortages.)
• Postponing tax payment deadlines until Otober 31st for those affected by the hurricane. (From what I'm seeing, this may not be enough for a lot of people. I hope they keep that in mind.)
• Staying enforcement of the penalty on diesel fuels that don't meet the EPAs new sulfur guidelines.
• Waiving penalties that would otherwise prevent owners of low-income housing projects from providing housing to refugees that don't qualify as low-income.

Good for them.

Taxes and Hurricanes

hurricaneI just thought that I should mention that for people who have suffered losses due to Hurricane Katrina, it may be possible to get immediate tax relief.  If you live in an area that is covered as part of a presidentially  declared disaster area, the law allows you to amend your 2004 tax return and claim your loss on that return.  Doing so will allow you to claim the loss immediately, instead of waiting until next year.  This will allow you to get much needed refund dollars within weeks instead of months.

Also, this article at WebCPA has links to tax related information.  The IRS Publication covering disaster losses is here.

Further, I'd be willing to offer my services and advice, for free, to anyone affected by the hurricane, in obtaining tax records or amending your 2004 returns.  I realize that a lot of people have bigger fish to fry, like finding fresh food and water.  However some people may be in a position to start the process and doubtless more people will be in the coming weeks.

If you know of someone who needs hurricane related tax assitance, or you are an attorney, enrolled agent, or CPA who would like to try to help people out, please contact me at [email protected].  Please put Hurricane Tax Assistance in the subject line.

Update:  Below are other tax related links regarding Hurricane Katrina.

Tax deadlines postponed.

IRS publishes list of officially recognized disaster area.

What to do when you receive a letter from the IRS

In my line of work I frequently have clients who completely overreact when they get a letter from the IRS.  Therefore, I would like to offer the following suggestions regarding what you should do if you find yourself in this situation.

1. Remain calm.
2. Remain calm.
3. Remain calm.
4. Open the envelope. ¹
5. Remain calm.
6. Remove the letter from the envelope.¹
7. Remain calm.
8. Read the letter.¹
9. Remain calm.
10. Ask yourself, "Do I know what this means?"¹
11. Remain calm.
12. Remain calm.
13. Remain calm.
14. Ask yourself, "Do I need help with this?"¹
15. Remain calm.
16. Then, and only then, if you've determined that you don't understand or need help, take the letter to a professional.
17. Remain calm.

I bring this up because a staggering percentage of our clients skip directly to step 16 and omit the "remain" in step 17.

The truth of the matter is that a lot of correspondence from the IRS  is just to inform you that they made a minor change to your return or ask that you clarify a minor point.  If you feel more comfortable getting professional help, that's fine.  However, you should at least make an effort to understand the situation before calling your accountant in a panic.

Update: Another common approach, throwing the letter in a drawer (unread) and forgetting about it, is also not recommended.

¹(This seems obvious, but many of our clients miss this vital step.)

If you talk on the phone a lot

*** Warning! Warning! Danger Will Robinson! Tax lingo ahead! *** 

... the IRS could owe you taxes that they've collected even though the courts have struck them down:

Here's a switch: The Internal Revenue Service might owe you money. This is because the IRS has collected a 107-year-old tax on long-distance telephone calls that several courts recently have found invalid.

     For individual consumers, getting some of your money back might prove to be more difficult than it's worth.

Businesses, however, might consider going after a refund from the IRS -- especially companies that spend hundreds and even thousands of dollars each month on long distance. Still, don't expect the federal agency to cough up any money anytime soon.

At issue is the federal telephone excise tax, a 3 percent levy on the long-distance portion of your phone bill. It fills the federal government's general coffer to the tune of about $5 billion each year.

The basic issue here is that the tax on long distance calls defines the type of call to be taxed  as one whose charge is based on the "distance and duration" of calls.  However most long  distance calls are no longer taxed based on the distance between the  two points participating in the call.  Consequently, several courts have found the tax to be invalid.  That hasn't stopped the IRS from collecting it though.

However, if you're wanting to get this money back you need to see if it's worth the trouble.  If you spent $500 on long-distance you'd only be talking about $15 in refunds.  For those who spend several thousand a year, or more, it might be worth it.

Well it ain't truth in advertising

*** Warning! Warning! Danger Will Robinson! Accounting lingo ahead! *** 

You'd be amazed if you knew how many taxes "tax-exempt" organizations are subject to.

Something to keep in mind

*** Warning! Warning! Danger Will Robinson! Accounting lingo ahead! *** 

I've noticed that some of our clients, when talking about their taxes, use words or phrases that they don't actually understand.  Here's a couple of points that will make things clearer and avoid some confusion.

First, the phrase "tax return" does not have anything to do with the amount you receive back from the government.  If you are receiving money back that is a tax refund.  The return is the document filed with the government which reports your income for the year and calculates your taxes.

Next, the phrase "electronic filing" has nothing to do with the manner the government sends you your refund.  Instead, electronic filing refers to a method of transmitting your return in which your preparer sends the return to the government through electronic means rather than mailing the return.  Filing electronically does not necessarily mean that the goverment will send your refund to your bank account electronically.  If you want an electronically transmitted refund, you want to use direct deposit.  Direct deposit can be used no matter what manner you choose to file your income tax return.

This type of year I typically find lots of misunderstandings with clients because they don't understand these two phrases.  Generally it's possible to infer what they actually mean and explain the phrases to them.  However, it's not always immediately evident that a client doesn't understand the words they're using.

Here's a tip

If you win a million dollars on national television, report it to the IRS!

(My apologies if this sounded like an accounting post.)

Grrrrrrrr

*** Warning! Warning! Danger Will Robinson! Accounting lingo ahead! *** 

For reasons that escape me, the IRS has made it as difficult as possible to pay business taxes. The only acceptable way to pay most federal payroll taxes and corporate income taxes is to take deposit a check at your bank. (I'm ignoring e-filing for now; that's another matter entirely.)

That check must be accompany a Form 8109 Federal Deposit Coupon. Strangely, the IRS has made it almost impossible to actually get these coupons. The IRS is supposed to automatically issue companies coupon books with all the business information already filled out. However, they are often slow in doing this; sometimes the books never come at all. If you don't have any pre-filled forms you're supposed to use a blank form. Teeny problem: this form is not available online and photocopies are not accepted. Your only recourse is to try to get some blank forms from an IRS employee. In my experience, most IRS employees guard these forms as if their life depended on it.

The end result? People who are genuinely trying to pay their taxes on time get totally freaked out by the hassle.

It's just a thought, but shouldn't the IRS be making it as easy as possible for you to actually give them the money on time? Especially since you'll get penalized if you don't?

ARGGGhHHHHHH!!!!!!!!!

A friendly reminder

*** Warning! Warning! Danger Will Robinson! Accounting lingo ahead! ***

Now here this: When you get a letter from the IRS¹, do NOT ignore it.  Take it to your tax adviser immediately!  Do not pass go! Do not collect $200.

This is especially true if they're asking for money or tell you they changed your return.

¹This goes for letters from state tax authorities as well.

A note to anyone planning on starting a business

*** Warning! Warning! Danger Will Robinson! Accounting lingo ahead! ***

You really should find out when your payroll taxes are due. Then, and this is the tough part, you should pay what you owe by the deadline!

I'm just saying.

P.S. You should also file the payroll tax reports when they're due.

Now hear this!

*** Warning! Warning! Danger Will Robinson!  Accounting lingo ahead! ***

I just wanted to clear something up here. No matter what your hunting buddy, golfing friend, mom, dad, second cousin twice-removed, butcher, baker, or candlestick maker may tell you, the simple act of setting up corporation/trust/LLC does not magically transform non-deductible personal expenses into deductible expenses. If someone tells you that it will they either don't know what they're talking about or they're trying to sell you hinky tax planning services. If someone tries to sell you something like this, DON'T BUY IT! Whatever they're selling is very likely to land them in Leavenworth. If you buy it, you risk the possibility of sharing a cell with them.

And another thing, there are no secret provisions of the tax code that say that you only have to pay taxes on foreign income or that only foreigners have to pay income tax or that "gains" are taxable but "earnings" aren't. If anyone tries to tell you otherwise, see above.

Folks, people selling these schemes wind up in prison on a regular basis. The courts have gotten so tired of hearing these idiotic schemes that they generally don't even deign to discuss the issue any more. They generally just say something like, "The taxpayer advanced many tax protestor arguments, all of which are known to be without merit," and move on.

Side note: Yes, you're probably going to see a lot more posts like this as I start winding up for tax season. These posts are a combination of a) utter frustration and b) the desire to keep as many people out of trouble as possible.

Update: I talked to a friend who's a school teacher. She said several teahcers in her district are serving 6 month prison sentences for tax evasion thanks to buying in to some of these "you don't have to pay tax" shysters. Remember: Having to pay taxes is bad, but Leavenworth is worse.

Contributions of vehicles

Update:  Someone complained that when I blog about accounting it interferes with her attempt to escape from CPA land.  So, in the future (Well, assuming I remember. If I forget someone please remind me.) posts about accounting or taxation will be proceeded by:

*** Warning! Warning! Danger Will Robinson!  Accounting lingo ahead! ***

I hope that will be satisfactory.  Now on to the post.

One of the common fundraising techniques for charitable organizations lately has been to ask people to contribute vehicles to the charity which the charity could then sell.  This was advantageous for taxpayers because generally they could deduct the contribution based on the "fair market value" of the vehicle. (This is often determined by looking up the blue book value.  That's something that's quite easy to do by using Kelly Blue Book online.)  This value could be used, even if it was significantly higher than the amount the charity eventually received on the sale.

Unfortunately, many people unkowingly made contributions to fraudulent organizations or were scammed by 3rd party promoters into making the contributions in a way that was not actually tax deductible.

The IRS has been very concerned about this and has announced new rules for 2005.

Under the new rules that go into effect in 2005, if the claimed value of a donated motor vehicle, boat or plane exceeds $500, and the item is sold by the charity, the taxpayer's deduction is limited to the gross proceeds from the sale. The charity must provide an acknowledgment to the donor stating the amount of the gross proceeds within 30 days of the sale. Also, under the new rules, the charity must provide an acknowledgment to the donor within 30 days of the contribution if the charity will significantly use or materially improve the motor vehicle. In that case, the donor generally may deduct the market value of the vehicle.

Taxpayers who will be donating a motor vehicle to charity by December 31, 2004, may still be able to deduct the fair market value of the vehicle under the current rules. However, taxpayers need to remember a number of existing requirements that must be met in order to qualify for a deduction for 2004. First, taxpayers should check that they are donating the car to an eligible organization. Donations to churches, synagogues, temples, mosques and governments are generally tax deductible. Other eligible charities are be listed in IRS Publication 78, which is available in many public libraries and on the IRS website at www.irs.gov.

In addition, the IRS is reminding taxpayers who donate a car to an eligible organization that they will benefit from a charitable deduction only if they itemize their deductions. Thus, the taxpayer's total itemized deductions need to be greater than the taxpayer's standard deduction for 2004 ($9,700 for married taxpayers filing joint returns and $4,850 for single filers).

The three major things to remember from all this is that if you want to deduct a vehicle this year make sure you have plenty of documentation, starting next year, for any vehicle deductions over $500 you must have a receipt stating the value that is deductible, and finally if the charity is going to sell the vehicle immediately you cannot, under any circumstances, deduct an amount greater than the charity received at the sale.

Word to the wise

I have found that is fairly common among our clients, especially the older ones, for the husband to take care of all the financial matters and not talk to his wife about any of it.  Generally this is because he doesn't want her to have to worry about the finances.

There is a HUGE problem with this way of thinking; the husband generally dies years before his wife.  When that happens the wife now has to take care of all the things that she's been sheltered from for years, maybe even her entire life.  In cases like this the wife is left with all this responsibility and no idea whatsoever about how to discharge the duties. 

I can't count the number of elderly women (well, I could, but I'm too lazy) that we've had come in to our office  scared out of their minds because they're so confused.  Today I got a call from a client and had to spend 10-15 minutes explaining to her what an income tax refund was, where it came from, and how the refund was determined.  Her husband isn't dead, but if he dies before her I'd imagine she'd be completely lost.

The gist of all this is that married couples should always work on their finances together, no matter how much one of them dislikes it or the other wants to protect them from it.  Don't cripple your spouse!  Make sure your spouse understands what money and investments you have, where the life insurance policies are, and what bills are required to be paid.

Please!

Have you ever wondered if you've waited too long to file an income tax return?

Here's a tip:  If you can't even remember which return you need to file for, you've waited too long.  (And yes, we have a client whose got that problem.)

Things you should know about filing late:

1. If you are going to file an extension, you still must make a good faith estimate of what you believe your tax liability will be and send it in when you file the extension.  If you underpay the IRS can charge you penalties and interest.
2. The first extension expires on August 15th.  If you can show that you have a reason why you can't file by that time, the IRS may grant you a second extension that expires October 15th.  If you miss that deadline the IRS can assess a penalty for late filing based on the amount outstanding on your return.
3. You have a legal responsibility to file your return unless your income is extremely low.  If you failed to file a return from 20 years ago (assuming you had income), you are still legally required to file that return.   Also, the statute of limitations period for a return year generally doesn't start running until the return is filed. (Generally, three years after April 15th or the day the return is filed, whichever is later, the statute period will expire.)
4. If you owe money for any year you will be required to pay the remaining balance, a late filing penalty, a late payment penalty, and interest (compounded monthly).
5. If you were due a refund but file a return more than 3 years late, you are out of luck in most cases.  Except in very rare cases the IRS is not required (indeed not allowed) to refund the money.
6. Another thing to keep in mind is that tax preparation software can be very memory intensive.  For that reason, many practices do not reinstall old software packages when they upgrade their computer systems.  If you are filing more than 3 or 4 years late, there is a good chance that your tax preparer may have to reinstall old software or prepare the return by hand.  That can be very expensive for you.

What's the moral of the story?  No matter how much you hate it, file your returns on time!