Are You a Non-Filer?
What is a non-filer? “Non-filer” is the term used in the tax industry for someone who has failed to file the required tax returns for one or more years. Whether you are simply a procrastinator, owe money and can’t pay, have marital problems or for whatever reason did not file, it is important for you to know that there are ways to remedy the situation.
Not filing on time can lead to a variety of problems, least of which is not sleeping at night. Don’t listen to those who tell you that you’re headed for jail. That simply is not true! The IRS is more than willing to work out some type of arrangement. And who knows, you might even have a refund which will be lost if you don’t file within the three-year statute of limitations.
It is always better to file a return even if you cannot pay any portion of the tax liability. Here are some of the consequences of not filing your tax return:
• Late Filing Penalty – The IRS imposes a penalty of 5% of the return balance due for each month the return is late, up to a maximum of 25% of the balance due. You can avoid this penalty simply by filing your return on time whether the balance due is paid or not.
• Return Prepared By IRS – The IRS may use information (W-2s, 1099s, etc.) that they have to prepare a return for you. The biggest drawback with this scenario is that they won’t apply any dependent exemptions, deductions, credits or other tax benefits you may be entitled to. They will simply tax you on your gross income and send a notice and tax bill.
• Statute Does Not Run - Generally, the statute of limitations on an individual tax return begins to run later of the return due date (generally, the April 15 due date) or the date the return is actually filed. Therefore, putting off filing your return also grants the IRS an extension of time to question you on the return.
So what happens if you can’t pay your tax liability? Keep in mind that if you have the ability to pay (at least if the IRS thinks so), they will not be inclined to settle for less than what you owe. You might consider one of the following options:
• Payment Plan - For taxpayers who cannot pay all their taxes at once, there is the installment agreement option. Generally, an installment agreement gives you up to 60 months to pay off the liability.
• Offer-In-Compromise – Where the taxpayer does not have the means to pay the tax liability, IRS will consider an offer-in-compromise. An offer-in-compromise allows those who qualify to pay an amount less than the actual tax liability. Applying for an offer-in-compromise requires full financial disclosure and the amount of the compromise will be based in part on the taxpayer financial resources and the ability to pay. The IRS will also consider an offer-in-compromise on any of the following grounds:
o Where a taxpayer is unable to pay the tax,
o Where there is doubt as to the taxpayer's liability for the tax,
o Where collection of the full amount would cause economic hardship for the
taxpayer, or
o Where compelling public policy or equity considerations exist that provide a
sufficient basis for compromise.
And what happens if you just ignore the issue? It will only get worse. The IRS could seize your bank accounts, garnish your wages and place a lien on your property. Bottom line: face the music and work out what you owe with the IRS.
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