According to Forbes, about five percent of the population in the United States of America fail to file their tax return. Late or unfiled tax returns constitute a serious issue that can come back to haunt taxpayers and hit them with heavy interest and penalties. Whether you are entitled to a tax refund or owe the IRS, you must consult an experienced tax attorney who can help you in filing unfiled tax returns and save you from punitive measures. Let’s look at five possible consequences of unfiled tax returns.
1. You may Have to Pay Penalties
The IRS can impose heavy penalties on taxpayers who fail to pay their tax returns. If they file their tax returns 60 days after the due date, the IRS can charge a maximum penalty of up to 25 percent of the outstanding amount. Taxpayers may file for an extension but they may have to pay late payment penalties that accrue at a rate of a half percent of the unpaid taxes per month and up to a maximum of 25 percent. If the failure to pay taxes is determined to be fraudulent, the IRS, under IRC 6651(f), can increase penalties up to a maximum of 75 percent of the unpaid tax.
2. The IRS may Prepare Your tax Return
The IRS every year receives income information from third parties using Form 1099 and Form W-2. Based on this information, the IRS can prepare tax returns for people who have failed to pay their taxes and can exempt them from credits, exemptions, and deductions to which they might otherwise be entitled.
3. You Could be Charged with a Felony
Not filing or failing to file a tax return can be considered a federal crime under IRC 7203. When taxpayers willfully neglect to pay their taxes, they may be charged with criminal tax violations and can be punished severely with jail time and fines.
Related Blog: How Far Back Should I Worry About Unfiled Tax Returns?
4. The Statute of Limitations Remains on Hold
The IRS generally takes three years from filing a return to audit it and propose an assessment. After the return is assessed, the IRS has 10 years from the date of that assessment to collect the outstanding tax bill. Although these timelines can be extended under special circumstances, these periods of limitation do not start until taxpayers file the returns or the IRS does it on their behalf. As a result, the IRS gets authorization to collect and assess the tax after many years.
5. You Could be Exempted From Getting Tax Refunds
Generally, taxpayers are not penalized for filing late tax returns when they are entitled to a refund. But, they have only three years from the due date to pay taxes and claim any refund. After three years, the unclaimed refunds will automatically be turned over to the government. Further, if taxpayers file their returns late, they may have to pay penalties.
If you have unfiled tax returns or owe money to the IRS, it is important to consult an experienced tax attorney to chart the best way forward. For more information about unfiled tax help and IRS problem resolution in Texas, you can connect with highly skilled tax attorneys available at the Law Offices of Nick Nemeth, PLLC. To speak with one of our attorneys, call (972) 484-0829, or fill out our contact form.