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Old 11-08-2007, 09:58 PM
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Why Delinquent Taxpayers should file Individual Tax Returns as soon as possible?

There are several reasons a delinquent tax return should be filed as soon as possible and these are as follows:
  1. If a taxpayer is due a refund for withholding or estimated taxes paid, it must be claimed within 3 years of the return due date. If the 3 years has passed, the taxpayer would be at risk of losing the right to claim these refund.
  2. If a taxpayer is due a refund for due to a right to claim a tax credit such as the Earned Income Credit (EIC), it must be claimed within 3 years of the return due date. If the 3 years has passed, the taxpayer would be at risk of losing the right to claim these refund
  3. For self-employed persons who do not file a return, these persons will not receive credits toward Social Security retirement or disability benefits. Remember, this failure to file results in not reporting any self-employment income to the Social Security Administration. Therefore, when it comes to retirement time, your benefits would not be correctly computed and may be considerably lower than what you should have received had you paid these self-employment taxes.
  4. Being compliant with the US tax laws is truly a goal that the IRS is attempting to encourage all US taxpayers (who meet the requirement of filing a US form 1040) to file their tax returns. The IRS has imposed strict statutory penalties for willfully neglecting to file timely tax returns. This alone, makes it imperative that you file these late tax returns.
What are the consequences for not Filing a tax return voluntarily?

The IRS has stated very clearly for those taxpayers who repeatedly choose not to comply with the law, the IRS will initiate stringent actions.

Most importantly, the IRS employees will prepare the tax returns for these non-filing taxpayers. These IRS employees will file the tax returns based on limited income information only and file a tax return without giving the benefit of any valid deductions, exemptions or credits entitled to the taxpayers! Thus, the resulting tax liability could be considerably higher.

The IRS will send the taxpayers bills for the higher tax due, plus penalties and interest. With this considerably higher tax liability the taxpayer could face tax liens and the IRS could also take punitive action such as seizing bank account balances and other assets. To avoid this potential nightmare, one should file delinquent tax returns.

Most Common reasons for not Filing a tax return?

What If I Owe More Than I Can Pay?

Even if a taxpayer doesn't have enough money to pay, returns should be filed to avoid further penalties for failure to file. The IRS will assist in finding a solution to the problem.

The IRS has streamlined its policies to offer alternative account resolutions if a taxpayer cannot pay in full with the return:

The IRS will help to set up an installment agreement when the situation warrants. Installment payments allow taxpayers to pay the tax debt over time.

The IRS will consider whether an offer in compromise is an appropriate solution.

What If I Don't File Voluntarily?

The IRS is taking enforcement steps for those who repeatedly choose not to comply with the law. IRS employees will prepare returns when taxpayers do not file. The returns prepared by the IRS might not give credit for deductions and exemptions a taxpayer may be entitled to receive. Bills will be sent to those taxpayers for the tax due, plus penalties and interest.
People who repeatedly don't comply with the law are subject to additional enforcement measures..

How Can I Avoid Owing Money on Next Year's Return?

Many people don't file tax returns because they don't have enough money to pay the tax they owe. They find out after completing their return that their withholding or Estimated Tax payments do not equal their tax liability.
To help avoid this situation, the IRS can advise taxpayers how to ask an employer to withhold enough tax from their pay. For any income that is not subject to withholding, the IRS can provide information necessary to make quarterly payments to cover any amount to be owed. To make payments electronically, see Ways to Pay Taxes or go to the EFTPS Web site.
Changes in financial circumstances could have an impact on taxes. For example, an increase in income, divorce, or selling an asset, may require adjustments to withholding or estimated payments.

By taking these steps, taxpayers will be better able to meet their tax obligations and avoid tax day surprises.

Will I Go to Jail?

A long-standing practice of the IRS has been not to recommend criminal prosecution of individuals for failure to file tax returns, provided they voluntarily file, or make arrangements to file, before being notified they are under criminal investigation. The taxpayer must make an honest effort to file a correct return and have income from legal sources. A letter from the IRS concerning taxes is not a notice that a taxpayer is under criminal investigation.

The IRS helps to get people back into the system as part of its long-term plan to improve voluntary tax compliance. The IRS wants to get people back into the system, not prosecute ordinary people who made a mistake. However, flagrant cases involving criminal violations of tax laws will continue to be investigated.

Find a CPA near you!

Ask TaxGuru Please refer to the legal disclaimer.

Last edited by TaxGuru : 11-08-2007 at 10:02 PM.

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