Having unfiled tax returns is a common tax problem. The IRS takes a severe view of unfiled income tax returns, and sees this as a pattern of behavior that can be construed as criminal. The IRS does not have to negotiate with you, no matter how dire your circumstances, until you are in compliance. To be in compliance, you must have all your back taxes filed and be in the process of paying your current year tax bill. This means you should expect no relief from wage garnishments, bank levies, and other enforced collection action, until you have filed all back returns. Plus, you have to show you are taking action, now, toward current and future taxes (like increasing your withholdings or making estimated tax payments).
CONSEQUENCE: The IRS Can Paralyze You, Financially.
The IRS may send you a notice about one or more unfiled tax returns you owe. This usually happens several years after the returns were due, and by then the penalties and interest, tacked on top of the tax that was due, can be horrendous. You may end up waiting until IRS has seized your bank account or garnished your wages or filed a tax lien in the public records. Or all of these actions may be taken, which can be both embarrassing to you and your family, but can cause tremendous financial pain as well. Don’t think the IRS won’t notice or forget. They won’t!
SUBSTITUTE FOR RETURN (SFR) Did you know that if you don’t file a tax return, the IRS can prepare a “substitute” return for you and begin collecting based on that? And guess what? The Substitute for Return (“SFR”) is almost always inflated. It will be based solely on the w-2’s and 1099’s that were provided to IRS from your employers, with no deductions for any business expenses. What’s more, if you sold real estate or stocks, IRS will be told what you received, but won’t give you a deduction for the amount you paid for the items. Further, the IRS doesn’t give you any exclusions or special treatments for being married or having dependents. Tack on penalties and interest on this inflated tax, and it can be a disaster for you and your family.
BOTTOM-LINE CONSEQUENCES OF NOT FILING PAST-DUE RETURNS If you fail to file a tax return, IRS can assess inflated taxes, penalties, and interest and cause financial ruin for you and your family. Plus, if you fail to file 3 or more years, you may find yourself within IRS’ crosshairs for a criminal investigation (punishable by up to 5 years in prison and up to $250K in fines).
It is important to realize: The IRS can also seize available cash from your bank accounts and Social Security benefits, often when you can least afford to lose the income.
Also understand that certain federal and state benefits, like Social Security and Medicare, are available only if you file federal tax returns. Because benefits from these two programs are based on your lifetime income, the agencies depend on information in your tax returns to calculate your entitlements. If you don’t file federal tax returns, you can cheat yourself out of prolonged federal benefits. Some state benefits like unemployment compensation are also based on income reported on your tax returns.
WHEN A MISTAKE BECOMES A CRIME Over the last several years, the IRS has improved its database of income transactions and increased its ability to identify people who have not filed taxes. If you have unfiled returns, you rise to the top of the list of people the IRS wants to target to collect revenue. If you can file before the IRS gets to you, you stand a good chance of resolving your tax problems relatively painlessly.
But if you wait for the IRS to find you, the cost of additional tax penalties grows exponentially. And if the IRS seeks you out before you have filed past-due returns, the likelihood of criminal prosecution escalates.
The IRS has a wide range of civil and criminal penalties available that they can impose on persons who don’t file returns.
Intentionally not filing, or filing a false return, is a federal crime. Our unwavering advice is to act to resolve your unfiled return before a simple mistake becomes a crime.
SOLUTION: File Your Unfiled Tax Returns.
The most important thing you can do to stay out of trouble with the IRS is to file your tax returns every year on time. Even if you can’t pay what is owed, it is still usually better to file on time and not pay, than not to file at all. Why? Because the penalties for filing late are much greater than the penalties for not paying when you have filed.
Here are three (3) more tidbits you should know: (i) you don’t have to file jointly just because you’re married (with the guidance of a tax professional from TaxProblemSolver.com, we can advise you when you should and should not file jointly), (ii) you can only get a refund if you file within 3 years (if you don’t, you lose the right to the refund and IRS gets to keep it); and (iii) we know how to find out what w-2’s and 1099’s the IRS has on file for you, and can help you organize your business records, or professionally use estimates where appropriate. The bottom line is that there is nothing to gain by waiting to address your unfiled tax returns. This is a problem you can fix and it’s one you should address preemptively and head on.
HOW TO TAKE ACTION: We’ll Help You Get Compliant and Current!
Many people worry so much about not being able to pay the IRS that they don’t file. This is a mistake the IRS will make you pay for dearly. Don’t let worry about owing the IRS money keep you from filing your tax returns. If you are not able to pay your taxes, the IRS offers payment options. Our team will explain your options and guide you through the process required for your situation. Take care of your unfiled tax returns and you can avoid the mess that’s heading your way.