People fail to file their personal or business tax returns on time for a variety of reasons. You may not have the money when your return comes due, or you could be struggling with a prolonged and debilitating health condition that leaves you unable to cope with daily life, let alone your tax obligations.
Whatever the reason, you’re probably wondering what to do about your delinquent returns. Should you still file them, even if the IRS has not reached out to you yet? Or just ignore them since you can’t pay the taxes due?
Ignoring a tax obligation is never recommended. Although you may not hear from the IRS immediately, sooner or later they will contact you about missing returns. It’s not a matter of if you have to address the issue, it’s when.
What If You Don’t File Voluntarily?
If you fail to file a tax return for any year, the government may file a substitute return on your behalf. You will receive a Notice of Deficiency with a proposed tax assessment and have 90 days to file a response and the delinquent return. If you don’t respond, the IRS will proceed with its proposed assessment and generate a tax bill which is generally higher than you might really owe because the assessment won’t take any of the following into account:
- Gross income adjustments
- Itemized deductions
- Exemptions for your dependents
- Business expenses
- Married filing joint status
If the bill goes unpaid, it will trigger the collection process. The Government will send several warnings before the government takes enforced collection actions like those below.
- Tax Levy: The IRS may impose a tax levy that may be made on your wages, bank accounts, securities and other income-generating assets.
- Tax Lien: A lien equaling the amount you owe can be placed upon any property you own or have an interest in.
When you don’t file a tax return, you can also be subject to a failure to file penalty, which is 5% of the outstanding bill for each month or part of a month where the return remains unfiled. This means that you could owe 25% of the balance in penalties after five months! Ongoing failure to file can lead to additional enforcement measures, such as financial penalties and even criminal prosecution.:
Always File Returns as They Come Due
Although the IRS may waive these fines and penalties if you can present a good reason why you did not file (e.g. debilitating illness), trying to convince the government that you shouldn’t be penalized is a lengthy and stressful process that could have been easily avoided.
Even if you can’t afford to pay the amount due, filing your current return (and catching up on missed ones) can protect your access to the following:
- Social Security Benefits: If you are self-employed and don’t file a tax return, the Social Security Administration will not receive information about your income and you won’t receive the retirement or disability benefit credits that you are entitled to.
- Tax Refunds: Failure to file an overdue tax return can cause you to lose an income tax refund. The IRS will hold refunds if its records show that even one income tax return is past due.
- Loan Eligibility: When you apply for a mortgage, car loan, or federal student loan, lenders will want to see copies of your filed tax returns. By filing your returns, you stand a better chance of getting financing when you need it.
Contact a New Jersey Tax Law Attorney
At Paladini Law, we can assist you in getting current with your filing obligations, recommend the best course of action for paying your tax bill, and minimize the risk of a criminal investigation. We will also work with the IRS to identify a mutually acceptable means of catching up on your tax debt, such as an offer in compromise, which can settle the balance for less than the full amount owed. To schedule a consultation with Attorney Brad Paladini, please contact us or call 201-381-4472.