You may have thought you didn’t need to file taxes because you didn’t make enough money or other extenuating circumstances, or you may have simply forgotten to file your taxes. However, most people earn over a certain amount to file taxes. If it has been a significant amount of time since you filed or paid taxes, you may still be liable for any back taxes. Let’s look at what could happen and how you can minimize the worst of the punishments.
What Are the Consequences of Not Filing for 10 Years?
There are so many things you will need over the course of your life that demand you show tax returns, and would include:
- Applying for passports.
- Applying for a mortgage.
- Applying for healthcare insurance.
Your tax returns are a crucial part of the documentation required. Therefore, if you don’t have them, you are not able to get what you need. If you fail to file your tax returns, you may face IRS penalties and interest from the date your taxes were.
Additionally, failing to pay tax could also be a crime. Under the Internal Revenue Code § 7201, an attempt to evade taxes can be punished by up to 5 years in prison and up to $250,000 in fines. But it’s important to note this is the worst-case scenario. The more likely outcome would be the IRS charges you with a failure to file and failure to pay, which carries a penalty of 5% based on the time from the deadline of your tax return to the date you filed it for every month the tax return is late, up to a total maximum penalty of 25%.
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What You Should Not Do
Many people bury their heads in the sand when it comes to their tax returns. If you have any old or unfiled taxes, you may think that the IRS has forgotten about you. But you still may be on their books many years later.
While there is a 10-year time limit on collecting taxes, penalties, and interest for each year you do not file, the period of limitation does not begin until the IRS makes what is known as a Deficiency Assessment.
Additionally, you have to consider the state you live in. For example, if you live in California, they have a legal right to collect state taxes up to 20 years after the date of the assessment!
What You Should Do
If you are in this situation, you try to rectify it as soon as possible. Here are some important components that you need to address:
Determine if the IRS Filed a Substitute Return
The IRS may file a Substitution for Return (SFR) on your behalf, which you are liable for. When an SFR is filed, it may leave off some deductions or exemptions that belong to you, resulting in a higher tax bill. However, you don’t need to accept the outcome. You can go back and refile those tax years, including any deductions or exemptions, decreasing the tax owed, and reducing interest and penalties.
File the Missing Returns
It may benefit you to file an old return before a demand is made. There is no time limit for submitting a previously unfiled return, but if you still want to claim a refund, you have up to 3 years from the return’s due date. Therefore, gathering and locating all the relevant financial records for each return is essential. If you cannot find something, you can contact the IRS directly and ask them for a copy.
Seek Assistance From an Experienced Tax Attorney or CPA
Speaking with an expert can help you to minimize any detrimental outcomes. Filing your missing returns provides a number of benefits:
- Protects your social security benefits. If you are self-employed and you do not file your tax return you do not receive credits towards your social security.
- Avoids any financial issues. For example, if you are applying for loans and cannot prove your income, the loan may be delayed or denied.
- Reduces stress. If you resolve your tax issues this can be a great weight off your chest.
Negotiate the Tax Bill
You are still in the position to negotiate. The IRS would prefer you to negotiate and pay as much as possible rather than going to jail. But even after you pay, the IRS has 3 years to charge you with a criminal offense. Here are some options you can try:
- Take the funds from the savings but not the retirement accounts.
- Make a partial payment to reduce the size of the bill and the interest.
- Ask for an installment plan with the IRS or payment extension
- Ask for leniency due to hardship by using an Offer in Compromise.
There’s a lot to consider when it comes to filing taxes, but you should never feel like you have no options. If you want extra support, we specialize in relief from tax debt and our tax relief specialists can help you out.
You may have thought you didn’t need to file taxes because you didn’t make enough money or other extenuating circumstances, or you may have simply forgotten to file your taxes. However, most people earn over a certain amount to file taxes. If it has been a significant amount of time since you filed or paid taxes, you may still be liable for any back taxes. Let’s look at what could happen and how you can minimize the worst of the punishments.
What Are the Consequences of Not Filing for 10 Years?
There are so many things you will need over the course of your life that demand you show tax returns, and would include:
- Applying for passports.
- Applying for a mortgage.
- Applying for healthcare insurance.
Your tax returns are a crucial part of the documentation required. Therefore, if you don’t have them, you are not able to get what you need. If you fail to file your tax returns, you may face IRS penalties and interest from the date your taxes were.
Additionally, failing to pay tax could also be a crime. Under the Internal Revenue Code § 7201, an attempt to evade taxes can be punished by up to 5 years in prison and up to $250,000 in fines. But it’s important to note this is the worst-case scenario. The more likely outcome would be the IRS charges you with a failure to file and failure to pay, which carries a penalty of 5% based on the time from the deadline of your tax return to the date you filed it for every month the tax return is late, up to a total maximum penalty of 25%.
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What You Should Not Do
Many people bury their heads in the sand when it comes to their tax returns. If you have any old or unfiled taxes, you may think that the IRS has forgotten about you. But you still may be on their books many years later.
While there is a 10-year time limit on collecting taxes, penalties, and interest for each year you do not file, the period of limitation does not begin until the IRS makes what is known as a Deficiency Assessment.
Additionally, you have to consider the state you live in. For example, if you live in California, they have a legal right to collect state taxes up to 20 years after the date of the assessment!
What You Should Do
If you are in this situation, you try to rectify it as soon as possible. Here are some important components that you need to address:
Determine if the IRS Filed a Substitute Return
The IRS may file a Substitution for Return (SFR) on your behalf, which you are liable for. When an SFR is filed, it may leave off some deductions or exemptions that belong to you, resulting in a higher tax bill. However, you don’t need to accept the outcome. You can go back and refile those tax years, including any deductions or exemptions, decreasing the tax owed, and reducing interest and penalties.
File the Missing Returns
It may benefit you to file an old return before a demand is made. There is no time limit for submitting a previously unfiled return, but if you still want to claim a refund, you have up to 3 years from the return’s due date. Therefore, gathering and locating all the relevant financial records for each return is essential. If you cannot find something, you can contact the IRS directly and ask them for a copy.
Seek Assistance From an Experienced Tax Attorney or CPA
Speaking with an expert can help you to minimize any detrimental outcomes. Filing your missing returns provides a number of benefits:
- Protects your social security benefits. If you are self-employed and you do not file your tax return you do not receive credits towards your social security.
- Avoids any financial issues. For example, if you are applying for loans and cannot prove your income, the loan may be delayed or denied.
- Reduces stress. If you resolve your tax issues this can be a great weight off your chest.
Negotiate the Tax Bill
You are still in the position to negotiate. The IRS would prefer you to negotiate and pay as much as possible rather than going to jail. But even after you pay, the IRS has 3 years to charge you with a criminal offense. Here are some options you can try:
- Take the funds from the savings but not the retirement accounts.
- Make a partial payment to reduce the size of the bill and the interest.
- Ask for an installment plan with the IRS or payment extension
- Ask for leniency due to hardship by using an Offer in Compromise.
There’s a lot to consider when it comes to filing taxes, but you should never feel like you have no options. If you want extra support, we specialize in relief from tax debt and our tax relief specialists can help you out.
