Unfiled Tax Returns

When you (the taxpayer) do not file tax returns within a certain time period, the Internal Revenue Service (IRS) files it for you. This is called a Substitute for Return (SFR). When the IRS files an SFR for you it is their best guess. When this happens, the amount of the tax liability is greatly exaggerated due to the fact that the IRS will file for you at the highest rate and you will not get all deductibles that you may qualify for. Most of the time, simply filing your tax returns greatly reduces your proposed tax liability. More than likely, you will have a lot of penalties and interest, and once the returns have been filed, if you have reasonable cause, you can request a penalty abatement to eliminate some of the penalties and interest that you (the taxpayer) may have accrued over the years.

The IRS has devoted resources to identify the individuals who are the most flagrant offenders. Criminal Prosecution has been and will continue to be recommended. Criminal Investigations are developed and investigated for high impact investigations of non-filers in various occupations and industries. There are several consequences that may arise from not filing your taxes. A Failure to File Penalty is the steepest penalty the IRS will charge for someone who owes taxes and did not file. This penalty is 5% of the total balance for each month that has passed since due, and can be up to 25% of the total balance. Interest Penalty is the interest on unpaid balances for an approximated amount of 4% of the annual interest on all unpaid balances. Failure to Pay Penalty is a penalty in which 0.5% of the total balance for each month that has passed since the balance was due. In a worst case scenario, the IRS can fine you up to $25,000 and one year in prison. Generally this is a scare tactic for the IRS, and they tend not to use this alternative.

Any refund that you might have been due beyond the last 3 years is forfeited. You only have three (3) years to claim a refund. If you owe and don't have any money to pay your tax liability, you can request to be put on an installment agreement plan, for both State and Federal, if need be. Interest and penalties will continue to accrue on all unpaid balances.