Taxpayers are required to file their tax returns once every year to document their finances and the taxes paid during the year. Some taxpayers, however, go past the due date of filing tax returns, accumulating years of unfiled tax returns and end up facing various penalties, interests, and even have to face legal consequences. If you too have non-filed tax returns and need guidance, this blog is for you. Read on to find out all you need to know about filing unfiled tax returns.
Why You Must File Unfiled Tax Returns Immediately
Negligence or inability to file a tax return, when you owe the IRS, is an invitation to trouble. Many taxpayers are unaware of the fact that an unfiled tax return is worse than filing a return and not paying the due amount. If you are unable to pay your taxes, the IRS has avenues to help you pay what you owe the agency. Not filing a tax return is a crime, and you could be severely punished by the IRS. This section gives a brief overview of the IRS tax problems that may arise for not filing a tax return.
1. Paying penalties and interest
Not filing a tax return exposes you to penalties and interest payments. If you owe taxes, two penalties you may face include:
Failure-to-file-penalty – A late penalty, which is 5 percent of the total tax due, is imposed when you do not file a return. The penalty grows for every full or partial month you don’t file your taxes, and can grow to 25 percent.
Failure-to-pay-penalty – When you don’t pay outstanding taxes, the IRS imposes a penalty of 0.5 percent of what you owe.
The IRS also charges interest on unpaid taxes, which is between 3 and 10 percent, on a quarterly basis.
2. Loss of refund and other tax benefits
The IRS gives you a time period of three years to file returns to claim a refund. If you don’t file the tax in time, consider any money owed to you by the IRS lost. The same time limit is applicable when taxpayers want to claim a tax credit. If you don’t file a return, you cannot claim the credit in later tax years. Self-employed individuals do not get any disability benefit or social security retirement if they don’t file their returns.
3. A substitute return being filed on your behalf
Another IRS tax problem that may arise if you do not file a return is that the IRS might file a substitute return using your 1099 or W2s forms. While you may think of a substitute return as relief from the hassles of filing tax, it eventually costs you more in the long run. The reason being, when a substitute return is filed, the taxpayer gets one exemption and standard deduction. If you qualify for a tax credit, have a substantial amount of itemized expenses, or dependents, none of them would be considered as a waiver, which will reflect in the form of an exaggerated tax liability.
4. Face collection actions
If the IRS performs an assessment of the substitute return, you are close to facing collection actions. The type of enforcement depends on the amount you owe the IRS and circumstances that led to non-filing of your tax return. The IRS may seize your assets, including bank accounts, home, vehicle, or other personal property, place a lien against your property, or turn the issue into a criminal case. If the IRS takes hold of your assets, SSI, child support payments, and disability benefits are exempt from seizure.
The IRS has an Information Returns Program (IRP), a computer system, to match W-2 wage statements with the 1099 income reports of employers. If the system doesn’t find a match with the 1099 report, it automatically starts Taxpayer Delinquency Investigations to generate notices to the last known address. If there is no response, the IRS contacts the taxpayer, requesting them to file the unfiled tax return within 30 days. The IRS expects every taxpayer to file their returns and pay any amounts owed to the agency by the 15th of April every year. You may request the IRS to extend the deadline for a few months, or consult an attorney for assistance. Failure or negligence to file a return can cause financial distress and the IRS may consider you a criminal non-filer, which has legal consequences.
Ways to Settle Your Unfiled Tax Debt
If you want to file and settle unfiled tax returns with the IRS, consult an experienced IRS tax settlement attorney at the Law Offices of Nick Nemeth. We have a team of reputable IRS tax relief attorneys who have successfully helped many taxpayers settle their IRS debts. Continuing the discussion, this blog covers some of the ways to settle unfiled tax returns. Take a look.
1. Offer in Compromise
If you owe the IRS taxes more than you can afford to pay, you may be eligible to settle the debt for an amount less than the actual amount owed. In such cases, you need to apply for an Offer in Compromise (OIC) after checking your eligibility. OIC is a payment plan that requires a taxpayer to pay either a lump sum amount or follow a short term payment plan. Schedule a consultation with one of our tax attorneys to check whether you qualify for OIC.
2. Installment Agreement
Under the Installment Agreement provision, the IRS allows financially-distressed taxpayers to pay their outstanding debts through monthly installments over a stipulated period. If a taxpayer meets the minimum requirements and the IRS is convinced with their reasoning, it would stop all collection efforts, and also eliminate the possibility of wage garnishments, levies or other enforced collection methods.
3. Currently Not Collectible Status
Under the Currently Not Collectible program, the IRS releases a taxpayer from paying the unpaid taxes for a stipulated time. The IRS will declare a taxpayer is “Currently Not Collectible” and unable to pay for the stipulated time after receiving certain evidence. It is however a temporary provision that simply buys some time for taxpayers to clear their outstanding tax liabilities.
4. Tax Filing Extension
Tax filing extension helps taxpayers who are unable to file their taxes before the deadline. In such cases, taxpayers can request an extension of the deadline by filling out Form 4868. It is however important to remember that the provision only gets you an extension on the filing date; the date of payment remains the same, which is usually April 17th.
Filing Unfiled Tax Returns
Step 1: Collate all Documents and Information
Collate all the necessary information and documents you would need to file unfiled tax returns. If needed, you can request your income, account, and wage transcripts from the IRS. You must also collect information related to investments, self-employment, and other income that were not documented in the IRS file.
Step 2: Complete Filing the Return
Complete filing your tax return accurately. Review and double-check your return against the transcripts you received from the IRS. Make sure you do not miss even the smallest detail of your finances when filing unfiled tax returns.
Step 3: Hire a tax lawyer
You can also seek help for unfiled tax returns. Hiring a tax lawyer to deal with different tax issues is the ideal way to avoid potential tax-related issues. Tax professionals keep tabs on important dates and maintain an updated record of your financial documents. Moreover, they can also guide you on how to tackle other IRS tax-related issues, including tax liens, levies, or other similar problems.
Need Help with Unfiled Tax Returns? Contact Us!
Filing unfiled returns correctly is essential to avoid penalties, interests, and legal consequences. The ideal way to deal with any small or big tax-related issue is seeking professional help. Speak with one of the IRS tax lawyers at The Law office of Nick Nemeth in Dallas, Texas to get professional help with all kinds of IRS tax problems, including helping you out in filing unfiled tax returns. To discuss your tax problems, simply call (972) 426-2991 or fill out our contact form, and we will contact you shortly.