What Happens If You Have Unfiled Tax Returns?
Each year, millions of Americans find themselves bogged down in fees and interest (not to mention the principal) due to unfiled tax returns with the IRS. It’s important to be aware of the fact that the IRS often examines delinquent returns more closely, and that you could be facing penalties if you handle them incorrectly.
At Midwest Tax Relief, we can help you determine what tax forgiveness programs you qualify for, as well as protect you from aggressive collections tactics like tax liens, bank levies, and wage garnishments. To learn more about how we can help you resolve problems with the IRS, contact us today.
Why Do So Many People Neglect to File?
Most people simply procrastinate when it comes to filing their tax returns. Others don’t have a clear idea of when or how they’re supposed to file. Still others simply hope that the IRS never gets around to catching them and willfully attempt to conceal revenue.
While none of these are very good reasons for not filing your taxes, the last one has the disadvantage of being a type of fraud. However, the IRS will not attempt to determine why you neglected to file your taxes until later in the process. They will simply present you with a bill that includes the unpaid principal, fees related to the failure to file, and any interest that has accrued on the account.
In many cases, the failure to file can be resolved amicably. If the IRS is accusing a taxpayer of fraud or they are levying still penalties, an IRS tax resolution attorney can be a huge help. In some instances, the taxpayer may qualify for tax forgiveness.
How Does the IRS Identify Non-Filers?
Today, the IRS has the benefit of technology to aid in catching those who habitually fail to file for their taxes. Non-filers constitute the largest category of “noncompliant” taxpayers and the IRS continues to target them as their highest priority. With technologies such as machine learning and big data, it’s never been easier for the IRS to locate those who habitually fail to file hoping to save money. Big data enables them to match your expenses against your reported income and identify those who are failing to report income or underreporting income. This software is overseen by a team of auditors and accountants who then initiate legal action against non-filers.
In other words, if you have been lucky enough to fly under the IRS’s radar, it’s only a matter of time before they catch up with you.
Penalties for Unfiled Tax Returns
The IRS imposes both civil and criminal penalties against those who fail to file their taxes.
Civil penalties include:
- Fines and interest,
- Forfeiture of tax refund,
- Loss of tax credits, and
- Tax levies and tax liens.
In cases where the IRS determines that the taxpayer willfully attempted to subvert the process of collecting taxes, they can also impose criminal penalties. These include:
- Failure to file is a misdemeanor which is punishable by up to a year in prison and a $25,000 penalty;
- Filing a fraudulent tax return is a felony which is punishable by up to three years in prison and a $250,000 in fines; and
- Tax evasion is a felony punishable by up to $100,000 in fines and five years in prison.
If the IRS wishes to pursue criminal charges against a noncompliant taxpayer, they must do so within six years of the date of nonfiling or fraudulent filing. In criminal cases, the IRS has the burden of proving that you sought to willfully deceive the federal government for the purpose of saving money.
Voluntary vs. Enforced Compliance
While most people fear the IRS, they do offer non-filers (and even fraudulent filers) the ability to make amends for their actions. If you note the problem or bring it to the IRS’s attention before they open an investigation, you may be able to avoid criminal penalties and prosecution.
At this point, however, it is imperative to be honest with the IRS and ensure that any returns you file are accurate and complete. Removal from the voluntary disclosure program almost ensures that you will face criminal prosecution.
Voluntary disclosure relief assumes that the taxpayer:
- Informs the IRS of his failure to file or false filing for more than one year;
- Has income derived only from legal sources;
- Makes the disclosure prior to the IRS launching a civil investigation;
- Cooperates fully with the IRS investigation; and
- Either pays in full or makes a good-faith arrangement to repay the tax debt in arrears.
Enforced compliance, on the other hand, is when the IRS initiates an investigation against you. First, the IRS will send “computerized notices” through the mail to inform you that you are going to be audited. If you neglect to respond to these notices, the IRS will then initiate more aggressive action to force compliance.
How Midwest Tax Relief Can Help
Regardless of whether you are under investigation or have voluntarily decided to admit that you neglected to report income or file for taxes on a revenue stream, we can advise you on the best course of action going forward. This includes:
- Applying to any tax relief programs that may be available,
- Arguing for why you don’t owe money the IRS says you owe, or
- Explaining why a personal hardship prevents you from paying taxes at the moment.
Speaking to an experienced Omaha tax attorney early in the process is crucial. To learn more about how we can help, contact Midwest Tax Relief today.