Many good folks each year fall behind in filing their tax returns. The largest reasons for not filing are fear of not knowing how to file and the thought of not being able to pay the balance due. Even if you are unable to pay you should file your return to avoid future penalties for not filing.
Penalties for not filing can reach up to 25 percent of the amount due. If you are due a refund from the IRS there is no penalty for not filing. However, you should file as soon as possible to avoid losing your refund. After three years from the tax return due date you will not be eligible to collect a refund or claim tax credits on your return.
To help those who can't afford to pay the balance due IRS does offer installment agreements to pay off your debt. The downside to installment agreements is that you will continue to pay penalties and interest because you did not pay your yearly taxes in full.
If your debt to the IRS is so large that an installment agreement will not help and there is reason to believe that paying would place you in a financial hardship there is the option to file an offer in compromise. In the case that you believe you may qualify to file an offer in compromise you should consult with an experienced professional first.
To help ensure that you do not end up with a large tax bill at the end of the year make sure you are withholding enough tax from your regular paycheck or making estimated tax payments throughout the year if you are self employed. Events such as an increase in earnings or change in marital status may call for the need to change your withholding amount. As long as the taxpayer has paid the same amount of taxes from the prior year or they have paid 90% of the current year's tax, whichever is smaller, they will not be penalized.
After not filing one year it seems the chances of filing the next year go from slim to none. If you are years behind in filing you should consult with a professional to help you file all your returns correctly. The sooner you file; the better. Penalties and interest will continue to accrue until you decide to do something about them.
Finding someone who is knowledgeable in tax law and IRS procedures will help take the stress off of your shoulders. You can sign a power of attorney to allow that person to communicate with the IRS directly on your behalf.
In the event that you owe the IRS money and you have made no effort to arrange for payment the IRS may take action through issuing a tax levy (such as garnishing your wages) or serving you with a federal tax lien. A garnishment of wages, or wage levy, takes place by notifying your employer of your debt and forcing them to send a portion of your wages to the IRS.
As for tax liens, the IRS often file them to protect their interest. If you have a tax lien filed against you it will destroy your credit. For all debts besides secured mortgages, the IRS becomes the next lien holder and they will not release the lien until you have fully paid off the debt or an offer in compromise case has been settled.
Although most cases with the IRS are handled in civil court the consequences for not filing and complying with IRS laws can be brutal. It can be a crime to willfully not file a return. To avoid being investigated you have to make an effort to file your return or make arrangements to begin the process of filing (such as hiring a tax professional) before you receive a letter stating that you are under criminal investigation.
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