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What happens if I don't file my Income Taxes?
Those who haven’t filed their tax returns sometimes wonder if
the IRS knows that they haven’t filed and if the IRS is
following them everywhere they go and if they will be
confronted at a most inconvenient time and asked why they
haven’t filed. Well, the good news is that the IRS is not
following you. But, the bad news is they (the IRS) will
probably eventually discover that you haven’t filed.
Typically, there will be a 2 or 3 year time lag between the
due date of a tax return and the time the IRS
contacts you on the matter. It’s even common for 5, 6 or 7
years to pass before the IRS catches up to non-filers. And,
imagine this - I’ve met several people who haven’t filed for
20 years or more and have never been contacted by the IRS.
Don’t count on it, but it does happen. But, the IRS is
probably getting better at finding those who have not filed
given the capability of this high tech world we live in today.
If you are one of the unlucky ones who do get caught, and my
guess is that most non-filers will get caught, then the IRS
will file a “substitute return” for you. This return is based
on information the IRS has from other sources, such as 1099’s,
W-2’s, etc.
The problem is that that the IRS will file the return as if
you are a single taxpayer, even if you are married and
eligible to file a joint return. You will not get any credit
for dependents either. No deductions will be used in computing
the amount of tax you owe (such as the amount of mortgage
interest you paid on your home) even if the IRS also has
information on these items. Sorry, you get no benefits for
deductions. You just get taxed on income items they know
about.
If you are self-employed, you get no expense deductions for
the cost of running your business. No mileage, no cost of
labor and no other “normal” business expenses.
If you sold your home or other real estate, you will be taxed
on the gross sales price of the home or real estate that was
sold. No deduction for the cost of the property. It’s the same
for securities that are sold. The IRS taxes you on the gross
sales price of the security sold, allowing nothing for the
cost of the security sold.
Basically the tax is computed on the “gross amount” paid to
you without any reductions that you may be entitled to and, of
course, this overstates your real tax liability.
To add insult to injury, penalties and interest will be
charged to you. These “add-ons” are huge. They can double the
tax in just a couple or three years. Multiple penalties add up
fast. Once these are added on, the IRS treats them just like
tax and sets out to collect these “add-ons” just as if they
were the same as the original tax owed.
Do something about this if you find yourself in this
predicament. Even if the IRS has already filed a substitute
return, it still makes sense for you to file your own return
to make sure you take advantage of all the exemptions,
credits, and deductions you are allowed. The IRS will
generally adjust your account to reflect the correct figures.
Call or . We can start a dialog that
can create a plan to get these returns filed and corrected.
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- What will IRS do once
they say I owe them some tax, even though I didn’t file?
Let’s say you didn’t file and the IRS filed substitute returns
for you. What then?
The IRS will then start what they call the “collection
process.” This is a process of many steps by which they intend
to collect the amount they say you owe from the substitute
returns they filed for you.
The process starts with a combination of three things. The
sequence of these steps vary from situation to situation. The
IRS can:
- File a Federal Tax Lien against any property that you
own,
- Garnish your wages if you are a wage earner,
- Take your compensation (by Levy) from a client or
company who owes you money if you are self-employed, or
- Levy your bank account.
You may hear from a Revenue Officer who is an IRS employee
assigned to contact you and collect the tax.
The IRS also shares the information they used to set up the
taxes on you with the state taxing authorities. So if you live
in a state with a state income tax, expect to hear from the
state also who will have filed substitute returns for you
based on the information they received from the IRS.
Make a move. Do something to avoid these actions by the IRS.
Call or so we can begin a dialog that will allow us
to create a plan to solve your tax problem.
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- Will I Go
to Jail if I don’t File?
A long-standing practice of the IRS has been not to recommend
criminal prosecution of individuals for failure to file tax
returns, provided they voluntarily file, or make arrangements
to file, before being notified they are under criminal
investigation. The taxpayer must make an honest effort to file
a correct return to avoid criminal prosecution which could end
in jail time.
The IRS wants you to voluntarily file your tax returns. The
IRS does not want to prosecute ordinary people who made a
mistake. However, flagrant cases involving criminal violations
of tax laws will continue to be investigated and could
possibly result in jail time.
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- What If I
Don't File Voluntarily?
The IRS is taking
enforcement steps for those who repeatedly choose not to
comply with the law. IRS employees will prepare returns when
taxpayers do not file. The returns prepared by the IRS might
not give credit for deductions and exemptions a taxpayer may
be entitled to receive. Bills will be sent to those taxpayers
for the tax due, plus penalties and interest.
People who repeatedly don't comply with the law are subject to
additional enforcement measures such as criminal
investigations which could result in jail time.
Call or . We can start a dialog
that can create a plan to get these returns filed and
corrected.
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- How did the IRS find
me?
IRS’s rulebook (The Internal Revenue Manual) has a whole
section on how to find you and your assets. IRS agents are
trained from this manual on how to research public and private
records to find you. They do this research in person or
online.
I am going to just hit the highlights here otherwise you would
be overwhelmed with information. If you need to know more my
contact information is at the end of the article.
IRS has a “Locator Services Program.” It includes a national
asset locator tool, the credit bureau web browser, the tax
research portal and the Department of Motor Vehicles.
These services provide easy access to public records such as
real estate transactions, real property, corporate officers,
vehicles, and aircraft, as well as information on people and
businesses. The national asset locator tools allow IRS agents
to research public records data and perform nationwide
research on you.
The IRS knows the Internet is a powerful tool for gathering
information about you and your business.
The IRS also has
corporate contracts for locator services and credit bureau
services. These services provide IRS employees with Internet /
Intranet access to do the following:
A.
locate taxpayers or their assets
B.
understand various types of businesses
C.
understand various types of property ownership
D.
confirm/validate the information taxpayers have
provided to them.
The IRS agent considers
the level of cooperation from you, the type and size of the
tax, and other factors to decide whether to use the Internet
search.
They also make
“third –party contacts” to find you and your assets.
The IRS agent also
performs a telephone number search, a Social Security Number
search and an Employer Identification Number search.
Real property records are
a critical source the IRS uses for locating you and your major
assets.
The IRS agent performs a
courthouse records check either online or in-person.
DMVs require state
residents who own a motor vehicle to register their motor
vehicle and require state residents who drive a motor vehicle
to hold a valid driver license. In addition to driver
licenses, motor vehicle departments issue identification (ID)
cards to persons who require an ID card. The ID card looks
like a driver license, but is used for identification purposes
only. Information maintained by the various motor vehicle
departments varies from state to state. Most states provide
driver information, lien holders, and vehicle information on
cars, trucks, etc. ID card information is also provided. The
IRS loves this stuff and has direct access to all of it. They
can not only find you but anything you are driving that
requires registering.
National Uniform
Commercial Code (UCC) filing records contain information from
commercial lien filings. These records can help IRS agents
find assets used by businesses to secure commercial loans or
to learn about financial relationships between businesses and
individuals.
Corporate information is
available from each individual state's Secretary of State,
State Corporation Commission, or equivalent. These
organizations provide information regarding the date of
incorporation and the officers of the corporation. All states
and the District of Columbia require that corporations
register at the time of their incorporation, and the
registration information is usually maintained in each state's
capital. Secretary of State information is one of the most
effective sources available to the IRS agent for corporate
accounts. It provides third party information, corporate
officers, and registered agents, and is also fairly effective
for verifying the existence of assets. IRS agents use the
corporate information received from the Secretary of State
research to assess the Trust Fund Recovery Penalty (TFRP), if
applicable.
Limited Liability Company (LLC) Information
is maintained by each individual state's Secretary of State,
or equivalent, often in the same database as corporation
records. These organizations provide information to IRS agents
regarding the date of organization and the members and/or
managers of the LLC.
The Employment Development Department (EDD) is a
state agency, and in some states the agency name is different
(the name changes from state to state). EDD provides secure
information regarding the payroll information supplied by
employers who have filed with the state. EDD information is
especially useful when an employer may have filed state
employment tax returns but not federal employment tax returns.
Information includes number of employees, payroll, etc. The
various state employment commissions (EC) have proven to be
some of the best available sources of wage levy data for IRS
agents. Access to these sources has been greatly enhanced by
on-line vendor access and tape-to-tape exchange programs.
These levy sources are very effective because the information
is updated quarterly.
The IRS exchanges information with State
Employment Commissions.
Utility company information helps IRS agents to locate
you. The IRS knows that often, taxpayers attempting to hide
from the IRS and other creditors do not notify the post office
of a new address. However, taxpayers generally will transfer
their utility service from an old address to their new one, so
when a taxpayer moves within an area served by the same
utility company, the taxpayer will provide an updated address
to the utility company.
The United States Postal Service (USPS) provides an
address update product — the National Change of Address
Linkage (NCOA). The IRS is a licensee of NCOA, and receives a
consolidated data file with change-of-address information from
the USPS on a regular basis. The IRS benefits from the NCOA
address update process by using the new addresses to attempt
contact and/or maintain contact with taxpayers.
If you haven’t filed, . Let’s get you caught
up and in good standing with the IRS. Otherwise, as you can
see from this article, they will be using all of their
resources to find you.
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