In addition to the personal stress it can cause, failing to file your taxes for many years can lead to serious consequences, not only with the IRS, but with other agencies that require you to show tax returns. This could lead to repercussions such as not being able to obtain a passport, apply for a mortgage, or even losing assets you own.
If you don’t file a tax return voluntarily, the IRS will create a substitute return on your behalf using information that was reported to them. You may not receive credit for deductions and exemptions that you would have ordinarily been entitled to receive.
Claiming a Refund
If the IRS creates a substitute return on your behalf and you had an overpayment of taxes, they will not process the refund. If you are due a refund, you must file a return within 3 years of the original due date, otherwise the IRS will keep your money!
What to Do If You’ve Received a Notice from the IRS
Often, you’ll receive a notice from the IRS when they’ve created a substitute return on your behalf and determined that you owe taxes. It’s imperative to take action before the IRS begins the collection process, otherwise they may levy your wages or bank account, or file a federal tax lien.
If you need wage and income information to help prepare a past due return, you can request a transcript from the IRS by filing Form 4506-T.
If you think you can hide from the IRS, think again. Technology has allowed the IRS to catch up with more than seven million non-filers, and they are cracking down on them in 2020.
What to Do If You Can’t Pay the Balance Owed
It’s important to file all tax returns that are due, even if you can’t afford to pay the balance owed in full. Filing past due returns can limit interest charges and late payment penalties.
If you need more time to pay, qualifying for an installment agreement can give you up to 72 months to repay your outstanding balance owed. In some instances, you may be able to settle your tax debt for less than you owe by filing an Offer in Compromise. Seek advice from a tax professional to see which option best suits your situation.