If you have unfiled tax returns, then the fear you experience can be overwhelming. You might be concerned about the penalties you could face and the amount of money you might owe, both of which can be significant. But putting off dealing with the problem can wind up putting you in an even more difficult position. After all, if you continue to forego tax filing, penalties will continue to mount and you could even wind up accused of tax evasion or tax fraud, criminal offenses that could result in a prison sentence.
What are the penalties associated with unfiled tax returns?
There are several. Generally, the IRS can levy a late filing fee and a late payment fee, which can collectively add up to nearly 50% of your unpaid tax amount. If you have several years of unfiled returns, each requiring you to pay thousands of dollars, then these penalties can quickly consume your finances and leave you in a dire financial predicament. Also, the IRS could file a substitute for return, where they essentially submit your taxes for you but without any credits. This increases your tax bill and, in turn, increases the amount you’ll have to pay in penalties. Keep in mind, too, that you’ll likely be charged interest on any tax amounts owed.
There are other ramifications for not filing tax returns. For example, it may be difficult, if not impossible, to prove your income when seeking a car loan or mortgage, and you may be unable to rent an apartment or even qualify for social programs.
Also, choosing to forgo tax filing can put you at risk of being charged with a criminal offense. If convicted of tax evasion or tax fraud, you could wind up facing serious penalties, including incarceration. We don’t bring that up to scare you but rather to stress the importance of dealing with unfiled tax returns as expeditiously as possible.
What are your options when you have unfiled tax returns?
The good news is that you have legal options if you’ve failed to file past tax returns even though you were required to do so. These include the following:
- Engaging in voluntary disclosure: If you willfully failed to file tax returns, then you can disclose non-compliance with tax law to avoid criminal prosecution. You have to make this disclosure before the IRS initiates any kind of proceedings against you, though, so the sooner you act the better. When you make the disclosure, you have to have a plan for paying your tax liability in full, even if you have to do so through an installment agreement.
- Seeking penalty abatement: Under certain circumstances, you may be able to request a penalty abatement, where the IRS foregoes implementing penalties against you. Generally, you have to have a history of tax compliance before the IRS will grant this sort of relief.
- Utilize tax repayment programs: Even if you’re hit with a large tax bill and significant penalties, you may be able to resolve your tax debt in a manageable way. For example, an installment agreement may make your payments more affordable so that you alleviate your tax obligation over time, or an offer in compromise may allow you to satisfy your tax debt with by only paying a portion of what you owe.
Tackle your tax issues now
You can’t afford to put off your tax woes any longer. That’s why now is the time to discuss your tax-related concerns with your attorney. Hopefully then you can develop a legal strategy that protects your interests and your finances as fully as possible.