Unfiled Tax Returns: Why You Should File

Unfiled Tax Returns with the Internal Revenue Service is not recommended when you cannot pay the taxes owed.  Even if an individual is unable to pay back tax debt owed, filing tax returns late improves their situation.  By not filing, individuals are viewed as evading paying taxes, and the consequences are step; ranging from heavy penalties with interest to the possibility of prison.  There are multiple reasons why individuals should file their tax returns annually to benefit themselves:

Tax Credits

When a taxpayer has unfiled tax retruns, the IRS prepares a substitute tax return.  This return is based on information reported to the IRS from employers and financial institutions but does not include tax credits, deductions or expenses, and the end result is a high amount of taxes owed.  Substitute returns overstate tax liabilities, and the IRS will expect a larger tax payment than what you most likely will have to pay if your tax return was prepared properly. Filing taxes late can benefit the taxpayer because the IRS often accepts the proposed changes made by the taxpayer.

Tax Refunds

The IRS pays out refunds to taxpayers every year.  However, in order to get a refund for over paying on taxes, you first have to file a return so its not good to have unfiled tax retruns.  Though it is impossible to predict whether you will owe an amount or get a refund on your return, you must file your return to be certain.  Taxpayers have the right to refunds for refunds for previously unfiled tax returns, with a statute of limitations of the previous three years.  Examples of Tax Credits you may qualify for include:

  • Making Work Pay Credit
  • Earned Income Tax Credit
  • Additional Child Tax Credit
  • American Opportunity Credit
  • First-Time Homebuyer Credit
  • Health Coverage Tax Credit

These are examples of credits that taxpayers may qualify for.  If you are preparing unfiled tax returns, consult an experienced New York tax attorney for unfiled tax return help with the preparation, and later the negation of a payment plan for back taxes owed.

Penalties and Interest

The IRS can assess fines and penalties for unfiled back tax returns.  These penalties have interest accrued on them, and can add up to large amounts quickly. Acting quickly by filing previously unfiled returns, and establishing an installment agreement or Offer in Compromise with the IRS will help overall to limit your back taxes owed, and additional penalties, as you make payments.

With the IRS using computers and data from many sources (1099s, W-2s etc.), it is rare that the agency will not locate individuals with unfiled tax returns.  If you are deemed a non-filer, the IRS criminal investigation may commence.  An experienced IRS tax attorney will offer unfiled tax returns help by better articulating your position and negotiating with the IRS.  The most important action is to file all previously unfiled tax returns, then work with your experienced attorney who understands the tax laws at negotiating an acceptable payment plan for all back tax debt owed.

By: Timothy S. Hart

Sources:

http://www.irs.gov/Individuals/Do-You-Need-to-File-a-Federal-Income-Tax-Return%3F-

http://www.irs.gov/uac/Do-I-have-to-File-a-Tax-Return%3F