Individuals who choose not to file their tax returns (“Unfiled Returns”) will be located by the Internal Revenue Service, but it will take time. Individuals may choose not to file their income tax returns with the IRS or New York State for many reasons, not limited to; not being able to pay tax debts owed, they believe paying taxes is voluntary, or just deciding not to. No matter what the reason for non-filing is, the IRS will want any back tax debts owed.
Non-filing and Unfiled Returns in general, can be a crime when back taxes are owed. It can result in penalties, fines, and the possibility of prison. The first step to solve this tax problem is to file any unfiled returns. This needs to be done even if you are unable to pay for the tax debt owed, as well as fees and interest that might be added to the debt. If you are due a refund, you may only receive the money for the previous three years. After the three year window, any refunds you may be owed will not be awarded in reducing your back tax debt liability.
Depending on each individual case, the consequences for non-filing vary. However, in most cases non-filers who take action by filing returns and paying back any taxes owed will no longer have the IRS criminal process after them.
For individuals who do not file and have unfiled returns, the IRS will first file a substitute return for you. This return will be based solely on information the IRS has received from other sources, such as wage information you employer reported to the IRS or mortgage interest reported to the IRS by your bank. A substitute return will not include any exemptions or expenses, and this return will likely overstate the real tax liability by a large amount. Once the tax liability is calculated, the IRS will start the collection process. This can escalate to placing a levy on your wages or assets, or filing a tax lien against your property.
Even if the IRS has already filed a substitute return for you when you have unfiled returns, you still have the ability to file your own tax return. By filing your own return, you are able to take advantage of deductions, exemptions and credits that are applicable to you. Generally, the IRS accepts your adjustments and will reflect the correct figures for your case in their accounts.
Non-filers who decide to file tax returns should consider seeking professional advice from a tax attorney. An experienced tax attorney can help with the process of filing returns and represent the individual to the IRS and state. If you choose to meet with an experienced tax attorney, you will want to bring as much tax documentation that you have. This will include any W-2s, Form 1099, capital gains or losses, receipts for expenses, and social security numbers and date of births for you and any dependents.
Taxpayers who continue to not file returns, or fail to respond the attempts made by the IRS for communications can face strong enforcement actions. If taxpayers continue non-compliance, there is the possibility for additional penalties or criminal prosecution for people with unfiled returns.