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7 Reasons You Should File Late or Missing Tax Returns

Unfiled tax returns

According to IRS statistics, 146 million U.S. taxpayers file their income tax returns each year.  Meanwhile, about 7 million taxpayers fail to file their required income tax returns.  If you are part of the 5% who have not filed, this article is for you.

You may think that ignoring your civic duty to file taxes will help you stay off the IRS’s radar.  Nothing could be further from the truth.  Even if you wind up owing taxes, it is still in your best interest to file your tax returns, even if they are already late.  Furthermore, even if you cannot pay your tax liability in full, you should still file your returns.  Then, contact the IRS or a qualified tax attorney and figure out a payment arrangement with the IRS.

”How do I even file late or missing returns,” you may be asking.  Late or missing tax returns must be printed and sent to the same location you would file an on-time return.  You can still use electronic software to help you file, you just can’t submit the late return electronically.  It must be on actual paper.  If, however, you have received a notice about your missing return, be sure to send it to the location indicated on the notice.

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Key Insights We Will Discuss:

  • Even if you cannot afford to pay your taxes in full, you should still file your returns
  • Reasons you should file late or missing returns
    • Avoid interest and penalties
    • Claim a refund
    • Protect your social security benefits
    • Applying for a loan can prove difficult
    • Passport revocation/denial
    • You want to submit an Offer in Compromise or get an Installment Agreement
    • IRS will file a Substitute for Return (SFR)
  • Contact an attorney if you have delinquent returns or if you have any other tax issues.  Call Ayar Law at 800-571-7175

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Reasons You Should File Late or Missing Returns

1.  Avoid interest and penalties

This is probably among one of the most important reasons to file delinquent returns.  Just as there is a penalty for when you neglect to pay your taxes, there is also one for when you do not file them.  In fact, the failure-to-file penalty is substantially higher than the failure-to-pay penalty.  The failure-to-file penalty is 5% per month of your tax amount owed versus a late payment penalty which is just 0.5% to 1% per month.  Both also come with tacked on interest.  One silver lining, however, is that the failure-to-file penalty maxes out at 25% (the failure-to-pay penalty maxes out at 5%).  So once you hit those max amounts, the IRS will stop penalizing you.  There’s a sliver of good news for you!  The downside, of course, is that your interest owed is calculated based on your total tax liability plus penalties.  So it is even higher than if it was just applied to your tax liability.

2.  Claim a refund

“Next to being shot at and missed, nothing is quite as satisfying as an income tax refund.”  I think we can agree that F.J. Raymond described best what it is like to receive a tax refund.  And you definitely do not want to miss out on receiving yours.

Even if you are not required to do so, you should still file those delinquent returns (and any others).  You may be owed a refund.  “Can I still get the refund even if my return is late?”  Yes.  You have up to 3 years to collect a tax refund.  This also applies to the right to claim tax credits such as the Earned Income Credit.

3.  Protect your Social Security benefits

For those self-employed taxpayers, if you neglect to file your federal tax return, any income you receive via self-employment will not be reported to the Social Security Administration.  This can pose a problem as you will not receive credits toward Social Security retirement or disability benefits.

4.  Applying for a loan can prove difficult

When applying for a loan, financial institutions such as mortgage lenders and brokers, etc. will request copies of your tax returns.  Without said tax returns, you will run into some problems.  This applies to anyone looking to buy or refinance their home, obtain a loan for a business, or if you are applying for federal aid for higher education.

5.  Passport revocation/denial

This applies more to those who don’t pay their taxes rather than non-filers.  But I think it is safe to assume that if you aren’t filing, you are also not paying so listen up.

As of February 2018, the IRS began certifying tax debt to the State Department for seriously delinquent taxpayers.  This can lead to the State Department denying the renewal of your passport or denial of you obtaining one altogether.

If you owe $52,000 or more (including interest and penalties) you are considered seriously delinquent and are therefore at risk.  In addition, the IRS needs to have first filed a Notice of Federal Tax Lien or tax levy.  If you neglect to make payment arrangements at this point, you are considered seriously delinquent.

You may be safe for now, but that doesn’t mean you will be safe forever.  Tax debt can accrue at an alarmingly fast rate when you consider interest and penalties.  So take care of the problem now before it continues to fester.

6.   You want to submit an Offer in Compromise or get on an Installment Agreement with the IRS

There isn’t much to say here so I will get straight to the point.  If you are trying to submit an Offer in Compromise or get on a payment plan to settle your tax debt, the IRS won’t even look at your file unless you are in full compliance and all your missing returns have been filed.

7.  IRS will file a Substitute for Return (SFR)

In some cases, if you have neglected to file your returns, the IRS will take the liberty of filing on your behalf.  This may seem like a good thing because it would presumably save you time (and money) but it is not.

The IRS will act in their best interest, not yours.  So that means they may not claim the exemptions, credits or deductions you would normally be entitled to had you filed on your own.  Even in those cases where the IRS has already filed on your behalf, you should still go ahead and file those same returns as you will be able to amend the returns they filed for you.  This is the best way to ensure that you get all of the tax exemptions, credits and deductions you are entitled to.

Contact an Attorney

If you have compliance issues with the IRS and wish to remedy that or if you have any other tax issue(s), contact the attorneys at Ayar Law.  We offer free, no-obligation tax advice.  Call us today! 800-571-7175

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Executive Summary:

  • Ignoring your civic duty to file tax returns is very foolish
  • It will not keep you off the IRS’s radar
  • There are a number of reasons to file your unfiled tax returns:
    • Avoid interest and penalties
    • Claim a refund
    • Protect your Social Security Benefits
    • You are applying for a loan
    • Passport revocation/denial
    • You want to submit an Offer in Compromise or get on an Installment Agreement with the IRS
    • IRS will file a Substitute for Return (SFR) on your behalf
  • Contact an attorney if you have any tax issues.  Call Ayar Law for free, no-obligation tax advice.  800-571-7175

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Venar Ayar, Esq.

Venar Ayar, Esq.

Attorney-at-Law, Master of Laws in Taxation
Principal and founder, Ayar Law

Venar is an award-winning tax attorney ranked as a Top Lawyer in the field of Tax Law. Mr. Ayar has a Master of Laws in Taxation – the highest degree available in tax, held by only a small number of the country’s attorneys.