Unfiled Tax Returns
The IRS is stepping up its enforcement on taxpayers with unfiled tax returns. This can mean having to pay back taxes and failure to file/failure to pay penalties and more.
It is always in your best interest to file back tax returns because the IRS will catch up with you eventually. In addition, the IRS commonly announces that filing timely will allow you to collect your refund if filed within three years… so don’t lose out.
What Can Happen to IRS Nonfilers?
The IRS has many programs, including the Automated Substitute for Return (“ASFR”) and the Delinquent Return Refund Hold programs to identify anyone who hasn’t filed tax returns and is required to do so.
The following charges can be brought against you for not filing:
Criminal charges can be filed against you with the IRS generally having a period of six years to act. While very few people go to jail for failing to file taxes, it is a misdemeanor, which can result in a year in jail and up to $25,000 in fines. Tax evasion charges are more serious and can result in up to five years in prison and $100,000 in fines.
The IRS can file civil charges against you at any time. A few things to know about civil charges:
- The IRS can file these charges at any time
- Penalties can run forever
If you owe the IRS money, they can come after you at any point. However, it is uncommon for the IRS to pursue charges against nonfilers after six years.
Multiple factors are taken into account to pursue you after six years that may include:
- History of noncompliance
- Income from non-legal sources
Failure to File Penalties
Failing to file and pay taxes will result in penalties which the IRS outlines:
- 5% penalty for each month of unpaid taxes
- 25% maximum penalty for unpaid taxes
If you’re 60+ days late, the minimum penalty for not filing is $435. Interest on the money you owe will continue to accrue until you pay the balance in full.
We may be able to negotiate on your behalf to reduce or remove penalties with a first-time penalty abatement or reasonable cause argument as to why you deserve penalty abatement.
What to Do If the IRS Notifies You
You can file your unfiled tax returns at any time, but most people will wait until the IRS contacts them, which is a mistake. Taxpayers should be proactive and file timely or as soon as possible to avoid failure to file and failure to pay penalties. It is also prudent to file as the IRS will quickly file their own tax return for you (“SFR or Substitute for Return”) which can result in massive tax debt.
If you refuse to file, the IRS has a very systematic way of notifying nonfilers, and they may include the following forms of contact:
1. Mail. Most nonfilers will receive an initial notification in the mail. These requests will be over a 16-week period. In this scenario, generally you’re not the target of a criminal investigation.
2. Phone. You may be contacted by mail or phone within a 30-day period to file your returns within 30 days.
3. IRS Revenue Officer Call or Visit. Direct contact with a revenue officer may occur where they will give you a deadline for filing the return directly with them to be forwarded for processing.
If you fail to respond to these notifications, you can expect the IRS to escalate matters. It’s best to comply with officials to remedy the issue as soon as possible.
Why We Don’t Recommend Allowing the IRS to Prepare Your Return
If the IRS prepares your tax return, it’s rarely in your best interest. The IRS has the right and power to file your return, but they will not:
- Consider all of your deductions
- Try to save you money
Additionally, if the IRS prepares your return for you, they can audit it indefinitely. Filing your own return means that the IRS has generally a three-year period to audit you.
It is always best to file your own returns, even if they’re years overdue, to avoid paying more money in taxes, interest and penalties.
Filing Late Comes with Extreme Difficulties
Unfiled taxes become more of an issue with every year that passes. Tax laws change often, and the correct laws must be applied to each year missed. It is also more difficult to gather:
- W-2 forms
- 1099 forms
- Other tax information
The IRS can help you obtain a W-2 and 1099 form for the missing tax years, but you will need to contact the IRS directly for this information. Some income information may be missing from the IRS transcript provided, and it can take weeks to obtain these documents.
If the IRS has contacted you with a deadline to file missing returns, you must quickly to obtain this missing information to hit the filing deadline.
Working with a tax lawyer to help you file unfiled tax returns before the IRS reaches out to you is always a better outcome. Filing original returns can also reduce the risk of potential criminal investigations.
Let Us Take Care of Your Unfiled Tax Returns
At Delia Law, we’ll work on your behalf to resolve your unfiled tax returns. Our team will work through multiple options, including, the following payment resolutions if you owe on your tax return:
- Offer in Compromise to settle for a lower amount than you owe
- IRS Payment plan that you can afford
If you haven’t filed your taxes in the past or are working on late filed tax returns, call us today for a free consultation in San Diego, Los Angeles, New York or Maryland.