Crisis View:

The Non-Tax Paying Crowd

The majority of taxpayers do file their tax returns with the IRS every year. It is estimated, however, that at least 3% of taxpayers do not file at all! It's not a big deal if you don't owe taxes, but if you do, it's a crime not to file. If you are caught, in theory you can be fined up to $25,000 per year or be sentenced to one year in prison for each year you failed to file. If the IRS believes you did not file in an effort to evade taxes, you may be charged with a felony, which could carry a fine up to $100,000 or a maximum of 5 years in jail. Although jail time is very uncommon, these threats still exist and should serve as a deterrent if you are thinking about not filing. Even if you do not have the money to pay the taxes you owe, file your return. Although you cannot be charged criminally after 6 years has lapsed since you failed to file a return, there is no statute of limitations on how long the IRS has to seek you out and demand payment from you for taxes owed on non-filed returns. You will forever be on the IRS hook if you don't get these returns filed.

You may be punished by the IRS for filing tax returns late. You can be criminally or civilly prosecuted, as well as denied refunds owed to you. If you wind up owing taxes from on a late return, you will probably be subjected to the late filing penalty, which is 5% per late month to a maximum of 25%. In addition, the IRS may impose a ½% to 1% late payment penalty on top of the late filing penalty. Oh yeah, was it mentioned that interest is piling up all the while? It is in your best interest to file late returns before the IRS contacts you. The IRS has a policy of not criminally prosecuting those of you that file of your own volition before the IRS has contacted you. In addition, the IRS tends to be more sympathetic in collecting taxes from those who volunteered their late returns than those they had to catch. Should they snag you before you have a chance to take care of your late return, the manner in which they contact you tells you a lot about how seriously they may treat your case. There are four ways you may be notified:

  • A non-threatening written request from the Service Center (this is how most non-filers are initially notified)
  • A letter or call from a Taxpayer Service Representative during which you will be given a deadline for filing, usually 30 days
  • A call or visit from a Revenue Agent or Officer, who will give you a deadline by which to file returns directly to him and may offer help in preparing your returns (if you still do not file the IRS can legally prepare a return for you, which is never in your best interest!)
  • A visit by a Special Agent, which indicates that you are the subject of a criminal investigation (obviously the worst way to be contacted)

There are a few lessons to be learned here. First and most importantly, always file your tax returns within the deadlines. If you need more time, request an extension. But never opt to not file at all. That's just asking for trouble. Take the initiative to file late returns before the IRS nabs you. You'll be better off in the long run. If you owe taxes from late returns, pay the debt as soon as possible, even if you must borrow. It's costlier to owe the IRS than almost anybody else. If you haven't filed in years and are worried that if you start again this year, you will be found out for all the years you've missed, don't be.

The IRS computers are not set up to search on such criteria. Not to mention the IRS does not want to discourage non-filers from starting to file again. So get filing!