I always tell my customers that there are two guarantees in life. The guarantees are death and taxes.
A lot of readers may not believe this, but there are still some people who fail to file their taxes, while others fail to pay them.
According to the IRS, almost one million taxpayers don’t file their taxes translating into over a billion dollars left in unclaimed refunds.
If you are due for refund, there isn't a penalty to file, however please note that you only have a three-year window to claim your refunds.
The job of the IRS is to retrieve tax revenue and not hunt people down for refunds.
An individual invites the IRS into their lives when they don’t file and owe or if you file and don’t pay.
If You Don't Pay Up
Not paying your overdue taxes is a misdemeanor which can carry a fine up to $25,000 dollars per delinquent year with the possibility of prison. However, the IRS would like to collect taxes rather than court or prison.
My experience is that most people who don’t file or actually file end up realizing that either they didn't owe or owed less than they expected.
Five percent a month is what the IRS charges on what you owe, up to a maximum of twenty-five percent after five months. You also have to pay 3 percent interest along with a failure to pay a penalty that is ½ of 1 percent of your unpaid taxes for each month you don't pay those taxes.
Complete Fee and Penalty Structures
The preferred method of communication by the IRS is through letters. Please reply to those letters or things will definitely get “ugly.” How is “ugly” defined? They have the ability to freeze your bank accounts, go after wages, and your property.
Although the government has six years to criminally charge you for failure to file, there is no statute of limitations on how long the IRS can come after you for not filing and paying your taxes.
A Starting Point
Penalties are part of the game, but that doesn’t mean they are unwaivable. The IRS has established some waivable reasonable causes.
Make a good faith payment quickly establishes intent that the initial failure to pay was due to reasonable cause and not neglect.
Note: You may call the IRS for abatement of penalties, however, they will not abate interest charges.
Death to the a taxpayer or a close family relative
Unavoidable absence of taxpayer (prison, hostage, etc. )
Destruction of place of records in natural disasters or casualty.
Taxpayer's ability to make deposits or payment has been impaired through civil disturbances (divorce)
Incorrect advice from a tax professional with proof that tax professional is competent and that you provided correct information.
Bad advice received from the IRS via phone, writing, or in person.
Ready to File?
File returns for every year you have missed. Do your best to make best guesses when it comes to income, deductions, filing status, and etc. See if you can collect old pay stubs, 1099s, or W-2s.
FYI: You may request a transcript from the IRS with Form 4506-T, Request for Transcript of Tax Return Check line 8 and the IRS will send you info from any W-2s or 1099s.
The IRS’ Get Transcript tool can also aid you in showing the filed returns and how much money you may already owe.
Once you have filed for all of your delinquent years, you will pay off back taxes and penalties. Look for an installment plan if a lump payment is too much. The IRS may also offer an offer in compromise which is similar to the best offer deal.
Payment Plans, Installment Agreements
Offers in Compromise
Alternative Payment Plans and Hardship Status