Unfiled Tax Returns
Unfiled tax returns may go unnoticed by the IRS for a period of time, but generally not forever. There is no statute of limitations for the IRS to assess tax and enforce the tax laws for unfiled tax return years. Penalties and interest continue to accumulate to the extent allowed by law for unfiled tax returns with a tax balance due. If taxpayers do not file returns themselves, the IRS has the power to file a substitute return on their behalf. As you can imagine, the IRS does not make it a priority to minimize the tax due.
Background for Tax Compliance
The US tax system is voluntary and gives taxpayers the right to prepare and file their own tax returns based on their own interpretation of applicable tax laws, regulations and published guidance. This voluntary system is beneficial because taxpayers are free to arrange their affairs to minimize taxes within the boundaries of the law. The downside of the government not preparing the tax on behalf of taxpayers is that some taxpayers will forget or refuse to file returns. To combat these failures, the IRS collects information from a variety of sources including employers, contractors, and financial institutions to verify taxpayer compliance. Taxpayers may be able to avoid this wide net for a period of time, but the IRS is very good at using its information advantage to catch up with taxpayers eventually.
What Happens If An Unfiled Tax Return Results In a Refund?
For taxpayers who are owed a refund, failing to file a tax return will result in the loss of the tax refund forever. Taxpayers cannot claim tax refunds after the refund statute of limitations has expired. Taxpayers generally have only three years after the return due date to claim a refund by filing a return or amending a previously filed return. After that, the US Treasury will keep the money even if you file a late tax return.
If you have filed a tax return late and expect a refund, but have not received it, contact Michigan tax attorney Andrew Steiger at Steiger Tax Law for a free consultation to discuss your options.
What Happens If I Owe Tax And Have Not Filed My Tax Returns?
Taxpayers should generally file prior year returns for years when tax is owed, even if past due, to minimize penalties and interest. There are exceptions to this general rule depending on the facts and circumstances. Even if you cannot currently pay the amount shown as due with a tax return, you may be able to minimize the failure to file penalty and related interest by filing a return on time or soon after the filing deadline.
Penalties and interest can accumulate quickly and may eventually exceed the original tax due for older return years. Penalties assessments may cease for older tax years, but interest on penalties and the original tax balance due will continue to compound and grow at an accelerated rate. At this point, you likely will need to consider tax debt relief options like an Offer In Compromise or Currently Not Collectible account status to reduce or defer payment of your overall tax debt. An installment agreement may also be an option to avoid tax liens and levies, but may result in full payment of the tax debt.
Taxpayers facing multiple years of unfiled returns may be tempted to avoid filing returns altogether or file only after the IRS catches up to them with a delinquent tax notice or assessment. This is generally a bad strategy because the IRS reviews a taxpayer's attempt to voluntarily comply with the tax laws as one of many factors when determining whether to accept an Offer In Compromise or approve Not Currently Collectible account status. Failure to file tax returns can also rise to the level of a tax crime with criminal penalties including additional fines and jail time.
Defending a criminal prosecution is generally an extremely expensive undertaking due to the seriousness of the charges and aggressive IRS prosecution. Criminal prosecution is usually reserved for exceptional cases of tax evasion or fraud, and the IRS may use high profile taxpayers to attract the public's attention to the possibility of jail time and instill fear in non-compliant taxpayers. The IRS also prosecutes average citizens who ignore the tax laws and filing obligations. Given the opportunities to reduce, eliminate, or defer payment, taxpayers should strongly consider getting back into compliance and remaining in compliant going forward.
If you have unfiled tax returns and are interested in resolving possible related tax debts, contact Michigan tax attorney Andrew Steiger at Steiger Tax Law for a free consultation. He can help taxpayers with IRS debts on a nationwide basis, including filing returns and developing a tax relief plan. Do not ignore unfiled tax returns that may result in large tax assessments that the IRS will not reduce.
Contact Michigan Tax Attorney Andrew Steiger for free consultation to determine if he can help solve your tax or other legal problem. Free consultation does not establish attorney-client relationship. Information is confidential and protected by attorney-client privilege.