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 they don't owe taxes, but if they do, it's a crime not to file. If your client is caught, in theory they can be fined up to $25,000 per year or be sentenced to one year in prison for each year they failed to file. If the IRS believes they did not file in an effort to evade taxes, they 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 they are thinking about not filing. Even if they do not have the money to pay the taxes they owe, file their return. Although your client cannot be charged criminally after 6 years has lapsed since they failed to file a return, there is no statute of limitations on how long the IRS has to seek them out and demand payment from them for taxes owed on non-filed returns. They will forever be on the IRS hook if they don't get these returns filed.
The IRS for filing tax returns late may punish your client. They can be criminally or civilly prosecuted, as well as denied refunds owed to them. If they wind up owing taxes from on a late return, they 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 their best interest to file late returns before the IRS contacts them. The IRS has a policy of not criminally prosecuting those that file their own volition before the IRS has contacted them. 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 them before they have a chance to take care of their late return, the manner in which they contact them tells them a lot about how seriously they may treat their case. There are four ways they may be notified:
There are a few lessons to be learned here. First and most importantly, always file their tax returns within the deadlines. If your client needs more time, request an extension. But never opt to file at all. That's just asking for trouble. Take the initiative to file late returns before the IRS nabs them. They'll be better off in the long run. If they owe taxes from late returns, pay the debt as soon as possible, even if they must borrow. It's costlier to owe the IRS than almost anybody else. If your client haven't filed in years and are worried that if they start again this year, they will be found out for all the years they'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!
