There are millions of individuals who do not file a tax return each year, many of them simply because their income is below the filing threshold levels for the year based upon their filing status.
Still others simply procrastinate and risk forfeiting their rightful refunds, including earned income tax credits, child tax credits, tuition credits and excess withholding.
Then there are others who believe they owe, whether they actually do or not, and don’t file because they think they can’t pay what they owe. Not filing on time and owing money can result in a 5% per month (maximum 25%) failure-to-file penalty, plus failure-to-pay penalties, and interest in addition to what is owed. It does not make sense to incur unnecessary penalties, especially when the IRS has payment options and, in certain situations, settlement options that may apply.
If you are in the situation just described and think the IRS is not aware of you, think again. The IRS information reporting system knows a lot more about you than you might imagine. Here is just a short list of items that get reported to the IRS’s computer and added to your file:
- W-2s for wages filed by employers.
- W-2Gs for wagering winnings from racetracks, casinos, poker parlors, etc.
- 1099-MISC forms from businesses you provided services
- 1099-INT and 1099-DIV showing interest and dividends earned from financial accounts.
- 1099-B forms showing the gross proceeds from the sales of securities.
- 1099-S forms reporting the gross proceeds from sales of real estate.
- K-1s from businesses and trusts you have an interest
- The list goes on and on.
Delinquent Tax Returns
So what does the IRS do with all this information when you haven’t filed a return? Well, if the gross income is enough that they believe you have a filing requirement, the IRS will prepare a substitute return for you based upon the information they have.
This is when things can get really nasty, because the substitute return is based solely on the income reported to the IRS without the benefit of exemptions, itemized deductions, any of the many credits to which you may be entitled, or cost basis for any property or assets sold. In addition, the substitute return will treat you as married filing separate (the filing status for which the higher tax rates kick in quicker).
Along with the substitute return, you will generally receive a notice of statutory deficiency (commonly referred to as a 90-day letter), which will give you 90 days to file an appeal with the Tax Court. If you ignore the 90-day letter or the 90 days run out, the tax assessment becomes final and the IRS can file tax liens and levy your property. This may include garnishing your wages or levying your bank.
Get Tax Help in Boca Raton
Don’t let things escalate to this point; give East Coast Tax Consulting Group a call at 561-826-9303 so we can get your delinquent tax returns filed before you start receiving notices from the IRS. If you’ve already received notices and have been ignoring them, gather them up and bring them to our Boca Raton office so we can figure out what course of action is required. If you have lost or misplaced past years’ records, we can order a transcript from the IRS that includes the information reported from various sources for each unfiled year. There are even ways to get penalties waived.