What if you had a job, had adequate withholdings but have not filed, will you get your refunds? There is good news and bad news. The good news is the IRS will accept your back returns. The bad news is you are likely not getting any refunds beyond three years.
Here’s some other things you need to know:
- If the IRS owes you money, you are not likely to receive a reminder to file. If the IRS believes they owe you money based on your withholdings and likely deductions, you are not on the IRS’s radar. Here’s why: Your employer reported your earnings and tax withholdings to the IRS. The IRS’s computers know what you have earned and withheld and know the IRS would likely owe you. Guess what? The IRS does not notify you when they think they owe you money. They only notify you when they think you owe them.
- You do not have to go back forever on the unfiled returns. Based on IRS Policy Statement 5-133, “Delinquent Returns – Enforcement of Filing Requirements” , and in Internal Revenue Manual 4.12.1.3, there is a limit on how far back you have to go to get in compliance with your filings. You do not have to go back forever. In most normal cases, filing the past six years’ tax returns will get you off the IRS’ naughty list.
- While not filing is a criminal offense, you are likely not going to jail. The IRS likes to prosecute people who do not pay their taxes. The IRS would only get bad press by prosecuting someone the IRS owes. You paid your taxes, but just did not file your returns. That takes you out of the IRS’ criminal bullseye.
- If the IRS filed a Substitute for Return (SFR), this can be corrected by filing the original return(s). It may seem wrong, but if you do not file a return, the IRS will eventually file a substitute return for you. They only do this if, based on the information that the IRS has, it appears you may owe. The IRS will file a Substitute for Return (SFR) and if you do not respond, will assume it is correct. If you continue not to respond, they will eventually go to collections on this inflated debt. The important thing for you to know, you have the right to file an original return no matter how long it has been outstanding. While you cannot get a refund beyond three years, you can reduce a debt forever.
- The IRS may owe you money but you will not receive it unless you file your returns. For you receive your refunds you MUST file. The IRS will NEVER prepare a substitute return in order to pay you money they believe they owe you. Remember, you cannot receive refunds older than three years, so every year that passes, you lose another refund.
- No penalties for you if you do not have a tax liability. The penalties for late-filing, late-payment, and not making estimated tax payments are all tied to a debt. Do not let your concern for penalties stop you from filing. If you do not have a tax liability, there will not be any penalties.
- No interest will be charged to you, if you do not have a tax liability. The IRS charges interest on outstanding liabilities. Do not let your concern for interest stop you from filing. If the IRS owes you money, they are required to pay you interest, but only if you file.
- There will not be any IRS levies or property seizures. The IRS can only go to collection if there is a debt. Remember, if the IRS files a Substitute for Return and you do not respond with an original return, as far as they are concerned, the IRS is justified in going to collections.
- Living off the IRS grid may not be all that it is cracked up to be. While the IRS may not be looking for your returns, there are some legitimate reasons to file. 1) An unfiled return DOES NOT run the audit Statute of Limitation. Therefore, the IRS could audit you forever on the unfiled returns. 2) You may eventually want to buy a house and need a mortgage. Lenders want to see your W-2 and know they match a FILED return. They typically want to see two to three years.
In summary, for a lot of reasons, you may want to consider filing your back returns. There are some twists and turns to filing back returns, especially if Substitute for Returns were filed. You may want to consider consulting a Certified Tax Resolution Specialist