Unfiled Tax Returns
It is important to file all tax returns that are due regardless of whether or not you can pay the tax in full. The worst case scenario is that it could lead to criminal prosecution. In most cases this can be avoided. The IRS may have very well prepared the returns for you based on information they received from third parties. If this was done, the resulting tax would usually be much higher than it would have been had the returns been filed by you because the IRS is unaware of your deductions, exemptions and credits. Even in this circumstance, original returns can and should be filed by you. The IRS will generally adjust your account to reflect the correct numbers.
A return filed by the IRS is not the same as a return filed by you, legally. The statute of limitations on assessment of further tax does not even begin to run until you file an original tax return. When the IRS files a return for you they can continue to impose even higher taxes against you for tax year indefinitely. A filed returns limits the authority of the IRS to impose further tax to three years. The same is true of the ability of the IRS to collect the tax from you. The filing of a return by you begin the running of the ten year statute of limitation on collections. Not filing a return means that the IRS can continue to take enforced collection action, such as levy or seizure of property, against you indefinitely. Filing a return limits the authority of the IRS to collect the tax for generally ten years.
Usually, when a return or returns are not filed the taxpayer through his absence waives many of the rights he has under the tax law. Most significant is the right to contest the amount of the tax which had been established on the records of the IRS. This would lead to the case being transferred to the Collections Division of the IRS where aggressive collection action could be taken against you, including seizure of assets and even a levy on wages or other income. This too can be properly dealt with but the further the matter is left unattended the more complete the web of involvement becomes, and the more time and effort are required to unravel the legal quagmire.
One who repeatedly does not file could be subjected to additional measures, such as additional civil penalties and criminal prosecution. The IRS does have a program for repeated non-filers who are concerned about criminal penalties, called the domestic voluntary disclosure program. If one qualifies for the program forbearance from criminal prosecutions is not guaranteed, but the practice may result in IRS not recommending criminal prosecution. As CPAs and tax attorneys we can do all that is necessary to assist you to get your returns prepared and filed, and attend to your other concerns. For a free consultation please call us at (201) 488-0070.