Penalties can include significant fines and even prison sentences. Fortunately, the government has a limited amount of time to file a criminal charge against you for tax evasion. If the IRS decides to file charges, this must be done within six years after the due date of the tax return. Not filing taxes for several years could have serious repercussions.
The IRS can not only prevent you from applying for a passport or a mortgage, but it can also create a substitute for the return against you, charge you for non-payment, or charge you for not filing the application. Tax return forms change from year to year, so the tax professional will use the form that was originally designed for the year in question. The IRS has extensive powers to seize a significant amount of your personal and real estate assets if you have unpaid taxes or overdue returns. If you don't file a federal tax return before the due date, you face a penalty for not filing the return if you owe taxes.
The IRS and states can take much longer to process it if you owe taxes due to an unfiled state or federal return. If you can't pay the full amount of your back taxes, you can make arrangements with the IRS to pay them over time. The tax advisor will then use this information to file federal and state tax returns for each of the years you haven't completed. If you don't pay taxes or reach an agreement with the IRS or the state regarding unpaid tax obligations, your account may be referred to an outside collection agency.
However, the IRS will reduce your tax bill only if it convinces you that you cannot pay the full amount. If you made estimated tax payments that you can credit to any tax balance you owe, request your account transcripts to verify the amounts you paid. In most cases, it's better to proactively file your own returns than to let the IRS file anything on your behalf. This penalty doesn't apply if you don't owe taxes, but if you don't file them for three years, you'll also lose the right to a refund.
In addition, there is no statute of limitations for the IRS to audit your return if you haven't filed it. Generally, when you apply for a mortgage, personal loan, business loan, or higher education loan, financial institutions will want to see copies of the tax returns filed. If you haven't filed your federal income tax return this year or previous years, you should file it as soon as possible, regardless of the reason you didn't file the required return. If you qualify for a tax credit such as the Earned Income Tax Credit (EITC), you must file taxes to apply for it.
The only exceptions are if there are signs of blatant fraud or if you are a public figure who has drawn attention to your tax delinquency, a tax protester, a drug dealer, is involved in organized crime, or a well-paid professional.
