Aasif writes, "I came to the United States on H1B from Pakistan and since I am from a country where no one really pays any income taxes (we just bribe the bureaucrats), I did not know that I had to file a tax return. I assumed that because my employer was deducting taxes already, there was not much for me to do. So I did nothing for three years, but then I realized all the talk about taxes and figured out I needed to do it myself. So I filed the tax but not for the previous three years. Surprisingly, I never heard from the IRS (unless the mail got lost because like any new immigrant I was constantly moving). In a few years, my employer sponsored me for a green card and no one asked me about my tax situation (in both USCIS Forms I-140 and I-485, there was no query related to filing taxes). My permanent resident status was approved and I have always filed my taxes since then, but now I am ready to apply for naturalization. My question is that since I have filed all the taxes since becoming a permanent resident (the USCIS on Form N-400 only asks if I have ever failed to file a tax return since becoming a green card holder and if I owe any money to the IRS, and I don't because when I called the agency I was told that I owe nothing), can my past come to haunt me?
Sloppy tax history may not be crucial to becoming a citizen due to IRS privacy laws: It is indeed true that the USCIS only cares about taxes after green card is approved but the good moral character aspect is very fuzzy. It depends on an officer to figure out if you have good moral character to be an American citizen and nothing screams 'no way' than being negligent about taxes. You see the USCIS can be quite sloppy in its work and in most cases of naturalization, they rarely bother to question what happened before the green card was approved (assuming that the agency did a good job in approving it). So you could get away with it and become a citizen without a problem. However, the risk always exists that despite the inability of the USCIS to see your tax records at the Internal Revenue Service, somehow your negligence with taxes might show up. Chances are that your application will not proceed forward smoothly and might open a can of worms with charges of tax evasion. In an extreme case, it might be concluded that your green card was issued in error and could be revoked, followed by seizure of your assets and deportation (depending on what you owe to the IRS).
Having clear tax history is always the best option: Without knowing your income and tax details, my guess is that because you failed to file a return, maybe the IRS simply filed one for you (the IRS typically mails out letters before it does that). Since you were probably living in a rental apartment and did not have any deductions, chances are that you did not owe anything to the IRS. That is the reason why IRS is telling you that nothing is owed by you. It is of course disappointing that you let the IRS take your money because you were careless (since you did not claim any legal deductions). My advice would be that despite high chances of your approval and comments from the IRS that you do not owe anything, you should still hire a CPA to file taxes for the years you did not do so (you will have to do the hard work of coming up with the documentation but it will be worth it). If you were owed a refund by the IRS, you will not get a penny because of the three year limit on refunds. However, by filing taxes (and in the remote case that you owe something to the IRS, pay it), you will be in the clear for the rest of your life (the IRS can come after you and there is no statute of limitations). The CPA may cost you several hundred dollars for this, but it is a good idea to become meticulous with your tax history before applying for citizenship. You will have less anxiety throughout the process, particularly during the interview.