Unfiled Tax Returns - Delinquent Tax Returns
Having unfiled tax returns (delinquent tax returns) is a serious offense in the eyes of the IRS, and can lead to mounting debt as back taxes and penalties accumulate. The IRS will not stop the collection process until all unfiled tax returns have been filed, and you have paid back all money owed. If you continue to fail to file your taxes, the IRS will proceed with enforcement action against you which could include a levy on your wages, paycheck, Social Security, Social Security Disability (SSDI), veteran's pension and/or your bank account.
The Penalties for Unfiled Tax Returns
1. Criminal Penalties - The penalties for willful failure to timely file tax returns or pay taxes are mentioned at 26 U.S.C. § 7203: Any person required under this title to pay any estimated tax or tax, or required by this title or by regulations made under authority thereof to make an income tax return, keep any records, or supply any information, who willfully fails to pay such estimated tax or tax, make such income tax return, keep such records, or supply such information, at the time or times required by law or regulations, shall, in addition to other penalties provided by law, be guilty of a misdemeanor and, upon conviction thereof, shall be fined not more than $25,000 ($100,000 in the case of a corporation), or imprisoned not more than 1 year, or both, together with the costs of prosecution.
2. Failure-To-File Penalty - If you don't file by the due date, which includes extensions, you may have to pay a failure-to-file penalty. The penalty is 5% of the tax not paid by the due date for each month or part of a month that the return is late. The maximum penalty is 25% of your tax, but it is reduced by the failure-to-pay penalty for any month in which both penalties apply. You will not have to pay the penalty if you can show "reasonable cause" for not filing on time. If your failure to file is due to fraud, the penalty is increased to 15% for each month or part of a month that your return is late, to a maximum of 75%.
What Happens If I Don't File?
You can expect the IRS to file a Substitute for Return (SFR) - When you do not file, the IRS may file SFR's (Substitute For Return). Most people we speak with think that an SFR is a tax filing. This is partially correct. It is a filing, but generally it is a tax filing with minimal allowable deductions and exemptions which harm the taxpayer. A Substitute for Return is the "assessment" needed in order for the IRS to file Federal Tax Liens and Execute an IRS Wage Levy/IRS Wage Garnishment and/or an IRS Bank Levy. The IRS will show you no mercy if you have unfiled and delinquent tax returns.
Substitute For Returns (SFRs) are prepared and filed pursuant to authority granted the Internal Revenue Service by IRC §6020(b) which authorizes the IRS to prepare an individual income tax return on behalf of the taxpayer. In most cases, the Automated Substitute for Return (ASFR) system is used to evaluate the IRS Master File (MF) information about the taxpayer, and prepare an SFR for a wage earner or taxpayer without other unresolved taxpayer delinquent accounts (TDAs). .
A Substitute for Return (SFR) is put together by the IRS based on their best estimate of what the IRS believes your income was for a given tax year. The IRS will figure in cost of living wage increases and other factors to estimate how much you make and, by extension, how much you owe in back taxes. The IRS will add all relevant fees, penalties, and interest which will likely increase what you owe into a substantial tax debt.
What You Should Expect from Having Unfiled Tax Returns
The IRS can seize available cash from your bank accounts as well as Social Security and Disability (SSDI) income at a time when you can least afford to lose it.
Also, understand that certain federal and state benefits, like Social Security and Medicare, are available only if you file federal tax returns. Because benefits from these two programs are based on your lifetime income, the agencies depend on information in your tax returns to calculate your entitlements. If you don't file federal tax returns, you can cheat yourself out of prolonged federal benefits. Some state benefits like unemployment compensation are also based on income reported on your tax returns.
The Proposed Assessment ("30-day letter")
The IRS "audit" of a non-existent "tax return" (Substitute for Return) results in a "deficiency." An IRS Form 4549 is generated to show the proposed tax assessment resulting from the claimed "deficiency" and a 30-day letter is sent with the IRS Form 4549 and IRS Form 886-A. This IRS letter, if responded to within 30 days, allows for a person to ask for a reconsideration of the audit through the IRS appeals office. It is discretionary on the part of the IRS to forward the request to the appeals office, and for the appeals office to grant a hearing. (The Proposed Assessment letter is not required by the law to be sent, so it is not always used by the IRS).
If the IRS discovers a habitual non-filer before voluntary disclosure, either through its own non-filer programs or through an informant, the IRS will often refer the matter to the Criminal Investigation Division (CID) to determine if criminal prosecution is warranted. The IRS has devoted substantial resources to identifying non-filers.
The IRS will not enter into any payment agreement or enter into tax settlement until you are Compliant and have filed all delinquent tax returns.
In many cases, if a taxpayer seeks to correct the problem before an IRS investigation or examination, it is possible to use the IRS’s "voluntary disclosure" policy to file missing returns and avoid prosecution. In connection with the voluntary compliance program, the taxpayer must be careful to file returns that are accurate and truthful. If the IRS determines that late-filed returns are false, the chances of criminal prosecution increase tremendously. The IRS’s voluntary disclosure policy applies to a taxpayer who: 1) Voluntarily informs the IRS of his failure to file for one or more years; 2) Had income from only legal sources; 3) Makes the disclosure prior to being informed that he is under criminal investigation; and 4) Files a correct tax return or cooperates with the IRS in ascertaining his correct tax liability
The IRS estimates that approximately 10 million taxpayers fail to file their federal income tax returns each year. As stated above, this will result in large penalties and serious consequences. The reasons for taxpayers failing to file their tax returns are varied: some taxpayers simply procrastinate; others don’t understand their filing requirement; and in a few cases, taxpayers willfully fail to file in an attempt to evade their responsibility to report their income and pay their tax liability.
Regardless of the reason, the IRS identifies all of these taxpayers as "non-filers." In most instances, the problems faced by non-filers can be resolved successfully if the taxpayer obtains an experienced IRS tax relief team and voluntarily addresses the problem.
The IRS tax relief team at Flat Fee Tax Service, Inc. has extensive experience with taxpayers who have not filed their tax returns for many years. It is possible to stop an IRS wage levy prior to filing your delinquent tax returns. To enter into an Installment Agreement with the IRS, you will need your delinquent tax returns prepared and filed. To settle with the IRS, you will need to be complaint and have your delinquent tax returns prepared and filed.
Restore your rights and become compliant today. Don't wait for the IRS to force you into action. Contact the tax relief team at Flat Fee Tax Service, Inc. today!