Unfiled Tax Returns: Tips for Getting Out of Trouble
There’s probably only one thing worse than owing the IRS and that is not filing a tax return. While the IRS is very accommodating with people who owe, the institution is very unforgiving to people who don’t file. People who don’t file are considered tax dodgers and the consequences are quite severe and range from heavy fines to even jail time. Most people don’t end up in prison but this doesn’t mean that the law should be flouted. As big-name celebrities like Wesley Snipes have shown, the IRS will make an example out of you so it’s better to stay on the safe side.
4 Reasons for Filing Your Tax Return
- Rights to tax refunds: the IRS routinely pays out hundreds and sometimes thousands of dollars in refunds to taxpayers across the US. But to get this refund in the first place, you have to file a return. Since you can’t accurately predict whether a refund will be due to you or not it makes sense to file. The IRS is legally obliged to withhold any or all refunds that would have been due to you in the event that you fail to file a return.
- Penalties (including jail time): The IRS can assess a fine of up to $25,000 and 1 year in prison for each year that you do not file a return. Whilst the prison enforcements are not pursued because of capacity constraints, the administering of fines is routine. Such fines can mount up for each year the filings are outstanding and this will eventually lead to visits from IRS agents themselves (but more on that later).
- Tax credits: Earned Income Tax Credits (EITC) are tied to the filing of tax returns and so by failing to file you are in fact forfeiting this very important and sometimes well needed benefit. You have around 3 years to file returns from the due date of EITCs but this grace period shouldn’t be at the forefront of your mind; the IRS probably won’t give you that long to get your affairs in order before they come knocking.
- Retention of statute of limitation rights: As a taxpayer in the US, you have the right to tax refunds and this right is backed by a statute of limitations or a period within which the IRS is obligated to send your returns (3 years presently). But the IRS also has a statute of limitations on collections and this period is even longer at 10 years. The IRS can pursue you for up to 10 years for unpaid taxes and the bad news is that the clocks starts only after you file tax return. The consequences of not paying should be very clear in light of these lengthy time considerations.
Signs The IRS May Be On To You (In A Bad Way)
There’s a widely held misconception that the IRS won’t ever catch up with people who don’t file their tax returns. While that notion may have held sway back in the days when computers were slow and the IRS didn’t have the internet at its disposal, holding such a notion true today is not only foolish but dangerous.
Today the IRS has sophisticated tracking equipment at its disposal and finding tax cheats is now child’s play. Once the IRS’ tax tracking systems latch onto you, the process may be swift.
What The Process Looks Like
The first thing the IRS will do is make an assessment on your status as a non-filer. If you are deemed a criminal non-filer, the targeting procedure will be more robust and aggressive. Under such a circumstance, an agent will definitely be on your tail. The good news is that most people are assessed as criminal non-filers and the collection process usually starts with a phone call or a letter.
Once the IRS is in touch with you there will be a request for filing and payment if taxes are owed. There’ll be a grace period for complying (usually 30 days) and you should always take this time to sort out your response.
Responding With Professional Assistance
Non-filers don’t much time to sort things out and so when the IRS makes a request for payment it is to be taken seriously. If you are not in a position to pay or your records are not in order, it might be a good idea to get in touch with a qualified tax professional.
This will help you in several ways to:
- Establish recourse (if any) that may help you get more time
- Build a sound case for justifying the non-filing
- Put together request(s) for payment solutions in handling the debt
A qualified tax professional will be better able to articulate your position and interpret the tax rules and regulations that the IRS using to pursue you. You’ll be able to find tax professionals online that work in several capacities as tax specialists. If you are deemed a criminal no-filer then you are almost certainly going to need a tax attorney. Less serious circumstances can be handled by either an enrolled agent or a Certified Public Accountant (CPA).
If you haven’t filed don’t hesitate to get the ball rolling in fixing things. The sooner you start the more money you’ll save and the better the outcome will be.