No Tax Return Filed? Oh Oh!


You did not file your tax return you say? No tax return filed in years? You are not alone. There are millions of individuals who do not file a tax return each year. Many of them don’t simply because their income is below the filing threshold levels for the year based upon their filing status.

Still others simply procrastinate. They risk giving up their refunds and credits. These credits include earned income tax credits, child tax credits, tuition credits and excess withholding. Mind you, these credits and refunds belong to them.

no tax return filed

Why Some People Do Not File a Tax Return

Then there are other people who believe they owe money to the IRS. Regardless if they actually do or not. They don’t file because they think they can’t pay what they owe. This is a big mistake! Not filing on time and owing money can result in a 5% per month penalty. This penalty is known as Failure-to-File penalty and can be as much 25%. In addition to Failure-to-Pay penalties there could be statutory interest added to what you owe. It does not make sense to add unnecessary penalties, especially when the IRS has payment options. And, in certain hardship situations, the IRS may have compromise options for you.

IRS Information Reporting System Knows!

Are you in the situation just described above? Do you think the IRS is not aware of you? Think again. The IRS information reporting system knows a lot more about you than you could imagine. Here is just a short list of items that get reported to the IRS’s computer and added to your file:

  •     W-2s for wages filed by employers.
  •     W-2Gs for wagering winnings from racetracks, casinos, poker parlors, etc.
  •     1099-MISC forms from businesses you have contracted with.
  •     1099-INT and 1099-DIV showing interest and dividends earned from financial accounts.
  •     1099-B forms showing the gross proceeds from the sales of securities.
  •     1099-K forms showing the credit card transactions for your business.
  •     1099-S forms reporting the gross proceeds from sales of real estate.
  •     K-1s from businesses and trusts you are connected with.
  •     Form 8300 transaction forms from banks showing large transactions.
  •     The list goes on and on.

What does the IRS do with all your information?

So what does the IRS do with all this information when you haven’t filed a return? Well, if the gross income is enough that they believe you have a filing requirement, the IRS will prepare a substitute return for you based upon the information they have. While you would think that is nice, that is not what you want to happen.

This is when things can get really nasty, especially with no tax return filed in years. The substitute return is based solely on the income reported to the IRS without the benefit of exemptions, itemized deductions, any of the many credits to which you may be entitled. Also, any cost basis for any property or assets sold is not taken into account. In addition, the substitute return will treat you as married filing separate. Married filing separate status has the higher tax rates that kick in quicker. See what we mean now?

The IRS Substitute Return is Getting Expensive!

Along with the substitute return, you will generally receive a notice of statutory deficiency. This is commonly referred to as a 90-day letter. This letter lets you know that you have 90 days to file an appeal with the Tax Court. At this point things really get expensive because you will need a tax attorney to handle the appeal. Do not ignore the 90-day letter or the 90 day run out time. The tax assessment becomes final after 90-days and the IRS can institute liens and levies. Then life really gets miserable. Your credit rating will take a nose dive. Liens will be put on your property. And, wages and refunds will be attached. That means you will see much less money in your weekly paycheck. Oh, and don’t think quitting your job will help, because the IRS will find you.

No Tax Return Filed in Years. How can I avoid all the costs with the IRS?

Although there are further remedies, they are increasingly expensive in terms of legal costs. Don’t let things escalate to this point; give please feel free to give Alex Franch, BS EA a call at 781.849.7200. Alex can can get your past returns filed before you start receiving notices from the IRS. If you’ve already received notices and have been ignoring them, gather them up in chronological order and bring them to the office. We can figure out the next steps required. If you have lost or misplaced past years’ records, Alex Franch can order a transcript from the IRS that includes the information reported from various sources for each year no tax return filed. There are even ways to get penalties waived.

Sources and Resources

For more information, call Alex Franch at 781.789.7200. WorthTax has locations in Norwell, Dedham, and Weymouth, Massachussetts.
Alex Franch

Mr. Franch is a Tax Specialist and Partner at Joseph Cahill & Associates / WorthTax. He has a diverse background including a Bachelor of Science from Boston College in Mathematics and extensive military service. Mr. Franch is an Enrolled Agent and has eight years of tax preparation experience. He has been serving individuals, families, and businesses for several years with tax and financial planning strategies and is a junior partner with the firm. Mr. Franch is licensed by the Financial Industry Regulatory Authority (FINRA) with a Series 6, 63, 65, and 7, and by the Commonwealth of Massachusetts Division of Insurance.

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