Forgot to File a Tax Return? Here’s What Will Happen

If you have not filed your tax return or experienced any other issues with filing your taxes, the IRS may soon be contacting you for an audit. The Internal Revenue Service is more than willing to forgive taxpayers for mistakes in the past, but only if they realize their mistake and try to make it right. If you are thinking about whether or not you should file your taxes, keep reading this article to learn more about the consequences of not filing.

Know What Not Filing Will Mean

The first thing taxpayers should know is that the IRS has several sources of information that can help them identify tax filers who have not filed their taxes. In some cases, employers are required by law to provide their employees’ annual income figures to the IRS. Self-employed taxpayers can also be reported to the IRS for not filing their taxes by an accountant or someone else who helped with the tax preparation process. The vast majority of taxpayers file on time, which is always advisable since late-filing penalties start piling up from April 15th. Late filers may also have to pay interest charges on the money owed, depending on when they do file. Anyone who does not file a tax return can be reported to the IRS by anyone with information about them.

Consequences of Not Filing Taxes: Penalties and Interest Charges

Failure to file your tax returns definitely has unfortunate consequences.  Your unfiled tax returns are those tax returns that are not considered to be filed and received by the IRS. This is generally done on a voluntary basis but may also occur due to loss or destruction of records. When you do not file your taxes, it results in the following:

  • Payment of interest for late payment penalty on your outstanding balance is assessed at one half of 1% per month.
  • If you are more than 60 days late, the minimum penalty is $100 or 100% of your unpaid taxes (whichever is smaller). The maximum penalty amount for an unfiled return is 25% of your unpaid taxes.
  • Your unfiled returns will be reported to credit agencies as delinquent and will have a negative impact on your credit score.
  • If you are an individual, you will receive a letter from the IRS starting at 130 days to remind you of filing and requesting that you file voluntarily before the additional penalties are added onto your account. If you ignore or neglect this letter, then wages may be garnished up to 25% of your wages or a lien may be filed against you for the amount owed.
  • If you are an entity, such as a corporation, partnership, estate, etc., then other legal actions can be taken by the IRS to force payment if you do not file voluntarily. #   If it is found that there was criminal fraud involved in the filing of your taxes you will be subject to additional penalties.
  • If it is found that there was criminal fraud involved in the filing of your taxes, then fines for tax evasion may apply as well as jail time depending on the severity and amount owed. 
  • It is possible for the IRS to bill you at any time in the future if it is determined that your tax returns were not filed and properly reported.

What Should You Do If You Have Not Filed Tax Returns?

Start by first ordering copies of your previous tax returns. By looking at them, you may be able to figure out what went wrong and do better this time around. It is also a good idea to sit down with an IRS-certified accountant who can help you fill out the forms correctly if it has been several years since you have filed a return.

You will also need to gather the necessary financial information, including any forms such as W-2s, 1099s and other income documents that might be required. As long as they are accurate and up-to-date enough to reflect your current situation, these forms should make it easier to finish your return. This information is especially important if you have lost the originals.

Contact a professional to help make sure that any forms are accurate and up-to-date. Make sure that any and all supporting documents are attached to your filing for verification purposes. The IRS is not required to accept your tax returns without these types of documentation. Do not submit your unfiled tax returns through a third party such as by phone or mail.

If you owe money, make sure you pay the amount owed before April 15th. The IRS may charge interest and additional penalty fees for the lateness of payment required under IRC 6651(a)(2). Interest will accrue from April 15th until your account is paid in full. If you cannot pay the balance owed, contact the IRS right away to schedule a payment plan that works for both parties.

There are several ways to pay back taxes when you owe money, and the IRS says that one of these will almost always be the right choice for you:

Payment Plan: If your bill is less than $50,000, a payment plan may be your best choice. Here at the IRS website, you can fill out an application for this and find more information about how to proceed.

Online Payment Agreement: If your bill is less than $150,000 or has been reduced to that amount after negotiations between yourself and the agency, it may be possible to set up an online agreement. This also requires submitting evidence of good payment history, along with personal information and data about your assets.

Instalment Agreement: If you owe $50,000 or less in delinquent taxes, the IRS says that this is also a good option for paying your bill in instalments over time. You will need to submit a similar application as with the online payment agreement.

Offer in Compromise: If you owe more than $50,000 and are not able to pay your entire tax debt within an instalment plan, then this may be the right choice for you. This route requires submitting information about your assets and liabilities.

Tax Returns

The consequences of not filing your taxes can be costly. If you have not filed tax returns, it’s important to take action now and file them as soon as possible. Paying the penalties and interest charges will save money in the long run because they’ll be much less than what you would owe if the IRS pursues legal means against you for non-compliance.