If you have unfiled past tax returns, then you may have concerns about what the IRS might do if you file those returns now. You may also wonder if your refund, if you had one coming to you, is now gone. However, what happens when you don't file varies between individuals and situation. In any case, you can catch up on your returns and work out any penalties if there are any.
What Happens if a Return Is Not Filed?
If you don't file a return, then the IRS may file one for you. If you have any income documentation, such as a W-2 and 1099, then they will take that information and file a "substitute return." They will also send you a letter of deficiency with what they say you owe.
Most substitute returns will be in the IRS's favor as much as possible. They will likely not consider any deductions. Therefore, even if you didn't owe anything in the past, you could still be notified that you owe penalties and interests.
What Should One Do About Unfiled Tax Returns?
First, don't ignore any of these letters. Immediately prepare and file your own tax return. You can file tax returns for up to six previous years. You also need to send them a letter explaining why you failed to file over those years or why you didn't need to file. If you have filed those returns, then send the IRS copies of them. You can also petition the tax court if you feel their assessment is unjustified.
What Happens to Refunds With Unfiled Tax Returns?
If the IRS owes you a refund, then you can still get it if you file your tax returns within three years of the due date. After that, you lose your refund. In addition, your refund can be delayed. The good news is that if you are due a refund, then you will not pay the penalties for not filing on time.
What if One Can't File on Time?
Penalties for non-filing can be high and even have serious legal implications. Take action before filing that late return. For example, if you are simply unable to file by April 15th, then file for an extension. While this doesn't eliminate late payment fees, those fees are usually much smaller than failure to file fees.
The good news is you can resolve your unfiled tax return problems. The main thing you should consider is that you need to take control of the problem before the IRS does. If you ignore notices, then you could end up with more problems. For more information about filing back tax returns, contact a tax services company.
