Everyone of working age is aware of the necessity of taxes. Workers play employment taxes, employers’ hand over those payroll taxes, individuals and companies file tax returns with documents that support the amount of tax or refund due. Most people who are due a tax refund file promptly, even early. But even those due a refund lose the money if the refund is not claimed within three years of the tax return due date.
So, what happens if you have unfiled past due tax returns? Actually, quite a lot, and none of it is good.
Millions of taxpayers fail to file their tax return each year. At the outset, you may receive a letter from the IRS notifying you that you are being assessed a penalty for failure to file. The penalty is roughly five percent of the unpaid tax owing. Eventually that five percent ages into 25 percent if the return is not filed. The IRS notes, at 60 days late, the minimum penalty is approximately $435 or 100 percent of the tax reflected on the return, whichever is less.
Interest is due on penalties owed. As well, if a refund is due to a taxpayer with an unfiled tax return, the agency can hold the refund until the return is filed.
Failure to file a tax return also has collateral consequences, which can include:
And it gets worse—if you ignore the tax due on the substitute return? The IRS can launch collection proceedings to garnish the money and due penalties with interest from your bank account or paycheck. The IRS can also file a federal tax lien, launch an audit, or a criminal tax investigation that leads to prosecution.
Failure to file is a fast and purposeful way to catch the attention of the IRS. We don’t recommend it.
From offices in Chicago and Cleveland, the tax attorneys at Robert J. Fedor, Esq., LLC help individuals and corporations nationwide and abroad respond to allegations of tax crime, IRS audits, and other tax controversy. When you need responsive, legal advice, contact us or call 800-579-0997.