A lot of people, especially those who are self employed, put off filing their tax returns until the very last minute and it can be very easy to overlook them entirely. People put off filing them for all kinds of reasons such as procrastination, not enough money at that time, or simply because they just don’t feel like it. No matter what your reason, it’s not a good idea to let unfiled tax returns pass the one year mark. After one year, the IRS gets upset and you will be put into a category called “Non-Filer”. This is not a good place to be.
How the IRS finds out
The IRS has a top notch computerized system called the IRP or Information Returns Program. This compares your W-2′s, 1099s, and other forms to what employers have filed and if they don’t match, you will get a letter. If you ignore the letter, a call will come, followed by an agent.
Penalties
The IRS doesn’t take Non-Filers lightly. You can get up to one year in prison and/or a fine of up to $25,000. That’s for each year you haven’t filed. If you have any unfiled tax returns from previous years, get them taken care of immediately to show you are cooperating and you should be ok.
IRS procedure
If you have unfiled tax returns from six or more years ago, odds are the IRS won’t come after you. Especially if six years ago you worked in a retail store or some other lower paying job. Just because the IRS isn’t calling and sending agents doesn’t mean you don’t have to pay. Any taxes owed have been gaining penalty fees and interest that entire time.
What you should do
Take care of any unfiled tax returns immediately even if you can’t afford them right now. This will stop all the penalty fees but not the interest. If you have many years worth, send them individually on different days. This can help keep you under the IRS radar.
