With the deadline for the filing of tax returns drawing closer, taxpayers have to be on their toes to make sure they do no forget to file their income tax returns. People who intentionally do not file tax returns when they owe taxes to the government are worse off than people who file tax returns but cannot pay. Why is this so? Not filing income tax returns is considered a crime.
So, what are the possible effects of not filing an income tax return?
One, the IRS can make an errant non-filer with a "failure to file" penalty. Along with this penalty, if the taxpayer owes the IRS some taxes, the back taxes will also incur charges. Two, fines for not filing income tax returns can reach up to $25,000 and a one-year stay in prison for each tax year that was unfiled (though they utilize this tactic to scare people into filing their tax returns). Three, a taxpayer who fails to file his income tax return cannot receive a refund from the IRS. Only taxpayers who file tax returns enjoy the benefits of refunds. Generally, taxpayers are given three years to file their tax returns in order to get their refunds. After this three-year period, the IRS is not obligated to pay the taxpayer anymore. Four, a taxpayer entitled to the Earned Income Tax Credit cannot claim the credit if he does not file an income tax return in a period of three years, ending on the due date.
Taxpayers may ask: Will the IRS really track down taxpayers who do not file income tax returns? Yes, though the hunt for delinquent tax return filers takes about one to two years. The database of the IRS uses the computer program called Information Returns Program (IRP) that matches W-2 wage statements and 1099 income reports from employers. When a taxpayer does not file his income tax return, the computer cannot find a match for the 1099 report from his employer. The computer then starts a Taxpayer Delinquency Investigation which includes sending computer-generated notices to the taxpayer's address. When the taxpayer does not make any responses to the notices, an IRS staff member will contact the delinquent taxpayer. The IRS employee may contact the taxpayer through a letter or by telephone or a criminal investigator may visit the taxpayer.
The next question that delinquent taxpayers might ask is this: What will happen when the IRS does get in touch with the errant taxpayer?
The IRS employee may do one of two things: target a taxpayer as a criminal non-filer or a non-criminal non-filer.
What is the different between the two? Well, a criminal non-filer is a taxpayer who fails to file tax returns for several hundred thousand dollars of income for several years. The criminal investigator starts an investigation of the taxpayer's unfiled taxes. A criminal non filer could face a bank levy, a wage levy, a personal property levy, or other methods of seizing property to pay off the IRS back debt owed by the taxpayer. A non criminal non filer, on the other hand, is a taxpayer who fails to file a tax return for a decent amount of income for maybe a few taxable years. In cases like this, the taxpayer is contacted through letter or through phone and is just given 30 days to file the unfiled tax returns. In some cases, the IRS can file the returns for the taxpayer.
A breath of fresh air for non tax filers who just forgot to file their returns: Taxpayers can file tax returns even if they have not done so for several years. These taxpayers just need to have their W-2 and 1099 forms ready in order to file their returns and they need to do it before the IRS sends them notices, otherwise, they are already in hot water.