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Unfiled Tax Returns
A non filer is a taxpayer who has an unfiled tax return. It is common that a non filer will have more than one unfiled tax return and that the non filing period may span over several years. Most taxpayers who have not filed a tax return with the IRS have not filed a tax return for one of several reasons.
Often, the non filer has never filed a tax return and does not know how to begin to file a tax return or is scared to start filing in fear that the IRS may come back on them for other unfiled tax returns.
Another common reason for not filing a tax return is because a taxpayer who may have always filed a tax return in the past may have missed filing a tax return for one year and then didn’t know what to do the next year out of fear that the IRS may take action against them for the missed year. Thus, the taxpayer gets into a cycle of not filing a tax return for future years.
Additionally, some taxpayers avoid filing a tax return because they don’t want their tax refund check to be intercepted for child support payments, student loan debt or another outstanding debt.
The IRS and Unfiled Tax Returns
Unfortunately, when a taxpayer is a non-filer and does not file a tax return, they are usually not aware that the IRS can file one for them. The IRS has a program called the Substitute for Return Program where they file a default tax return for taxpayers who do not file a tax return on their own. However, the bad part is when the IRS files a substitute tax return; the taxpayer almost always owes money to the IRS. This is because the tax return that the IRS files for the taxpayer does not optimize deductions and exemptions on the taxpayer’s tax return. Thus, the pendulum can swing from getting a tax refund to owing the money to the IRS.
The impact from not filing a tax return goes beyond the risk of owing the IRS money. Social Security, Disability and Medicare benefits are calculated on a taxpayer’s lifetime earnings which are reported to the Social Security Administration and the Internal Revenue Service. Some state sponsored benefits like Industrial Insurance and Unemployment Compensation are based on income that is reported, so taxpayers may not get full benefits because a tax return was not filed.
Although not filing a tax return is a crime, most taxpayers who are non-filers and have not filed a tax return are predominantly at financial risk because the IRS applies penalties and compounding interest to the tax debt of non filers. The penalty and interest can reach 47.5 percent. The IRS can also impose criminal and civil actions against non filers and does so in some instances.
A non-filer is frequently levied by the IRS on the tax amount of the unfiled tax returns. When the IRS levies a taxpayer, the IRS will seize the money in their bank accounts and garnishes their wages. This levy action is very common with non filers. The IRS does it all the time. The unfortunate part is that in many instances, when people get levied or garnished by the IRS, they often don’t owe the money that the IRS takes. Contact a Tax Consultant about unfilled tax returns.
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