Law Offices of Maryam M. Golbarg, P.C.
Your Tax Relief Attorney
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Representing Non-Filers: Unfiled tax Return Issues
There are many reasons that people fail to file their taxes. Sometimes, people don’t file because their filing status changes due to the death of a spouse or a divorce. Sometimes, they simply do not file due to procrastination. However, in most cases, people don’t file because they are unable to pay their taxes. Unfortunately, failure to file a tax return creates many problems (see below).
Why File a Tax return?
You are required by law to file an income tax return for any year with a filing requirements (determined by your age, filing status and gross income). Additionally, there are practical reasons to file a tax return, including but not limited to:
- To report your lifetime earnings as a basis for Social Security retirement and disability benefits;
- To report your income to receive state benefits such as unemployment compensation and industrial insurance (such as worker Compensation);
- To qualify for a loan to buy a home or finance a business;
- To apply for financial aid for college;
- To obtain your refund because you cannot obtain a refund without filing a tax return — you may lose your refund altogether if you wait too long (three year window);
- To claim the Earned Income Tax Credit (EITC), if qualified, even if you are not otherwise required to file (three year window).
Consequences of not filing tax return
Failing to file tax returns can jeopardize your financial security and future and can be very costly. In addition to missing out on federal and state benefits, you may end up owing more taxes and encounter a wide range of civil and criminal consequences such as:
- Criminal Charges: willful failure to file a tax return is a misdemeanor pursuant to Internal Revenue Code 7203. In cases where an overt act of evasion occurred, willful failure to file may be elevated to a felony under Internal Revenue Code 7201. You can face up to a year in prison for each year you refuse to file a tax return (up to 5 years).
- Civil Charges: If failure to file a return is fraudulent, a civil penalty known as the “fraudulent failure to file (FFTF) penalty” may apply under Internal Revenue Code 6651(f).
- Tax Penalties: If you owe tax and fail to file your tax return by the designated due date, including extensions, you may be subject to a late filing penalty equal to 5% of the tax due for each month the tax remains unpaid (capped at 25%). You may also be subject to a late payment penalty equal to 0.5% of your unpaid taxes for every month that you don’t pay. Additionally, interest will accrue on any unpaid taxes and on penalties.
- Substitute for Return (SFR): By law, the IRS may file a Substitute for Return (SFR) for you based on the information received from third parties (such as your banks or employers) if you do not voluntarily file. A SFR is a basic return for you and will not include any of your additional exemptions, credits or expenses.
- Not running the Statutes of limitation: the statute of limitations for the IRS to assess and collect any outstanding balances does not start until a tax return is filed. In other words, there is no statute of limitations for assessing and collecting the tax if no tax return has been filed.
What should I do?
Regardless of your reason for not filing, you need to file your tax return as soon as possible. We can help you find out what years you need to file, what the best filing status is, and find affordable solutions for dealing with the tax due on the delinquent tax returns, if any. Please note that your requirement to file past years’ tax returns continues regardless of the availability of your records. Similarly, your requirement does not change based upon the quality of your records.
We also recommend that you request Wage and Income transcripts from the IRS for the years that you need to file a tax return. Furthermore, we recommend that you order your IRS Transcripts Report If you are not sure what years you need to file. Of course, you can always contact us for a free, no obligation consultation.
