You create BIG problems when you have unfiled tax returns (don’t submit your income tax returns with the IRS).
What If You Don’t File Voluntarily
If you fail to file, the IRS may file a substitute return for you.
The Internal Revenue Service utilizes income that has been reported to them, like wages, interest income, subcontractor payments sale of property and so on.
The IRS then presumes you are single, have no dependents, and makes use of the standard deduction.
A Notice of Deficiency CP3219N (90-day letter) will be sent proposing a tax assessment.
You will have 90 days to file your past due tax return or file a petition in Tax Court.
If no action is taken on your part, the IRS will proceed with a proposed assessment.
If the IRS files a substitute return, it is still in your best interest to file your own tax return to take advantage of any exemptions, credits and deductions you are entitled to receive.
The IRS will generally adjust your account to reflect the correct figures.
Collection and Enforcement Actions
The return the IRS prepares for you (proposed assessment) will lead to a tax bill, which, if unpaid, will trigger the collection process.
If you repeatedly do not file, you could be subject to additional enforcement measures, such as additional penalties and/or criminal prosecution.
UNDERSTANDING UNFILED TAX RETURNS
An individual who has unfiled tax returns is called a nonfiler. The act of not filing one’s tax returns is a crime. You can possibly face imprisonment for a length of time proportional to each year of unfiled tax return. While the IRS does not put a bulk of taxpayers in jail or monetary fines ($25,000 for individuals and $100,000 for corporations) for failing to file tax returns, it is not a valid excuse to make this mistake. Even if you have not received any notifications from the IRS, do note that they will catch up with you sooner or later.
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