What Happens When Tax Returns Are Not Filed?
- According to the Internal Revenue Service (IRS), all citizens and residents of the Untied States and Puerto Rico must file an income tax return if they fall into one of the federal categories listed by the IRS, even if they don't owe any taxes. The categories cover just about everyone and include individuals, dependents, full-time students, registered aliens and the self-employed and are based on a minimum income. You do not have to file taxes if you fall below the minimum income standards set by the government. Visit the IRS website to find out if you are not required to file taxes (see Resources).
- The United States primarily relies on citizens to make required tax payments on their own accord. The Criminal Investigation (CI) arm of the IRS enforces the laws on those who refuse to follow the system. Investigators follow leads to prosecute those who deliberately refuse to comply with the tax laws. Refusal to pay taxes by any person or corporation can result in jail time. If you have not filed a return for any reason, you can file at any time and pay the interest penalties if you owe money. Those who are due refunds are not penalized for not filing, but they may lose any refunds owed if they don't file within three years. There is no statute of limitations on money owed to the IRS if nonpayment involves fraud. Back taxes are penalized with interest, and the penalty fees accrue interest charges as well.
- The IRS sends taxpayers a notice when taxes are due and have not been filed or reported. You could receive a notice for a number of reasons. If an employer claimed payments to you as a contractor, which you did not report, that could trigger a notice. Bank records and investment and insurance account payouts can result in an audit of the payee's tax returns. An under-reported notice may be sent if the current year's taxes differ vastly from previous years. Often the IRS is just requesting more information. If you are assessed additional payments, you may file an appeal or provide paperwork to justify your results. Respond to any notice from the IRS within 30 days to avoid further investigation.
- A minimum penalty of $135 is assessed to individuals filing taxes more than 60 days after they are due. The IRS also may impose a penalty up to 100 percent of the taxes that are owed. For taxpayers who owe less than $10,000, who can prove they are unable to pay their tax burden and who have regularly filed their returns for the last five years, the IRS is required to work out a payment installment plan. Payment in full must be received within three years of the agreement.