Conscientious citizens that obey the law under every other circumstance may be remiss in filing their tax returns. Why? There are a variety of reasons. Studies have shown that Illinois taxpayers neglect to file returns in years when there are changes in circumstances. Reasons can also be emotional or financial, if they are unable to pay their tax returns. Sometimes it’s just the result of procrastination.
Regardless of the reason, unfiled returns can lead to serious problems down the road. With the next year’s return, taxpayers will have the stress of having to pay back taxes, filing the right paperwork for earlier returns, finding old records and, most worrisome, being discovered by the I.R.S.
The I.R.S. uses an ever-improving database of income transactions that assists in identifying taxpayers that have neglected to file their tax returns. Agents will eventually be sent to make contact regarding the liability, which by then will have increased substantially due to interest and penalties. Civil and criminal sanctions can also be imposed on negligent taxpayers.
Legally, the I.R.S. can file a substitute return for those who have unfiled returns. If they receive no appeal after a letter of notification is sent, they will file the return without any exemptions or possible refunds to which the taxpayer may be entitled. However, it is still recommended that taxpayers file their own return. By doing so, their account will be adjusted.
Time is a precious commodity for taxpayers who have not filed their return. The law allows for a three-year window for claiming a refund. If the return is not filed within that time, the money becomes property of the U.S. Treasury and the taxpayer loses any chance of a refund. The funds also cannot be applied as a credit, even if taxpayers overpaid in previous tax years. The costs are considerable when neglecting to file a tax return.
If you do have one or more unfiled tax returns, the best course of action is to contact a tax professional or the I.R.S. to file the delinquent return. The more time that passes, the worse the problem becomes. By taking the initiative, payment options are made available and severe legal consequences avoided.