You Haven’t Filed Your Taxes in How Many Years?

Last week, during a workshop at a cosmetology school, the topic of, “Not Filing Your Taxes”, came up.  It was quite interesting to hear the varied perspectives of these students and the range of their knowledge.  Most of the students were aware of the requirement to file, but the majority didn’t know how serious it could get if you violated this obligation.

If you haven’t filed your taxes for several years, my best advice is to do it as soon as possible!  The good news is that if you are due a refund, you are not subject to any penalties.  However, you can only collect your refund up to 3 years!  If Ashley, files previous years taxes today, she could only claim her refund for the years, 2014, 2015 and 2016.  If you are unsure if you need to file, you can visit https://www.irs.gov/help/ita/do-i-need-to-file-a-tax-return and use the interactive tax assistant to determine your status.

Ashley hasn’t filed her taxes for 2016 and she wants to do this before her 2017 taxes are due.  There are two categories of penalties she could be charged with; a failure to file penalty and a failure to pay penalty.

  • Ashley’s failure to file penalty will be 5% of her unpaid taxes, with a cap of 25% of the unpaid balance.  Since she waited more than 60 days after the original due date, she will also have to pay the smaller of $135 or 100% of her unpaid balance.
  • Ashley’s failure to pay penalty would normally be 0.5% of her unpaid balance.  Since she is already paying a failure to file penalty of 5%, she will not incur this 0.5% penalty because the IRS states that the maximum penalty in any one month cannot be more than 5%.  If Ashley files her 2016 taxes, but does not have the ability to pay, she will then begin accruing the 0.5% interest on the unpaid balance to include penalties.

The failure to file penalties are much more expensive so you really want to avoid this situation.  Ashley could have filed for an extension and avoided those penalties, although she would have still incurred interest for not paying on time.

Ashley did not avoid filing her taxes out of neglect, but her home was destroyed in a tornado.  If she can prove to the IRS that she did not try to avoid filing her taxes because she just didn’t feel like it, but there was a reasonable cause, the above-mentioned penalties might be waived.  In addition to natural disasters, there are other situations that may warrant the penalties to be renounced.  Death in the family, sickness and divorce are a few of the circumstances that may be considered.  If you no longer have access to the necessary documents to file your taxes, you can contact the IRS for a transcript of your records containing any W-2s and 1099s that were submitted.  The quickest way for Ashley to receive this information is to visit https://www.irs.gov/individuals/get-transcript and go through process to receive her transcript online.

In the event that the IRS does not waive Ashley’s penalties, and she is unable to pay the full amount immediately, she could request a payment agreement or submit an “Offer in Compromise” to settle her debt for less than the unpaid balance.  The IRS will review Ashley’s circumstances regarding her ability to pay, her income and expenses as well as her asset equity.  She could use the “Offer in Compromise Pre-Qualifier” at https://irs.treasury.gov/oic_pre_qualifier/ to see if she is eligible.

When Ashley receives a letter from the IRS concerning her failure to file or pay taxes, she SHOULD NOT IGNORE their request.  There are significant consequences such as garnishment of wages, no access to bank accounts and possible jail time.

Although, the statue of limitations for Ashley to claim her refund begins the date the return was due, the IRS has more time to come after her.  Their statute of limitations does not begin until the later of the due date or the date the return was filed.

It is always a good idea to approach the IRS rather than wait for them to come to you.  If you are in any one of these situations, contact us at info@Excerebus.com or                  407-988-5647.  We are here to help and be a liaison between you and the IRS.

Categories: Tax Information

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