Generally, if a taxpayer is
due a refund for withholding or estimated taxes paid, it must be claimed
within 3 years of the return due date or risk losing the right to it.
The same rule applies to a right to claim a tax credit such as the
Earned Income Credit (EIC).
Self-employed persons who do not file a return will not receive credits
toward Social Security retirement or disability benefits. Failure to
file results in not reporting any self-employment income to the Social
Security Administration.
What If I Owe More Than I Can Pay?
Even if a taxpayer doesn't have enough money to pay, returns should be
filed to avoid further penalties for failure to file. The IRS will
assist in finding a solution to the problem.
The IRS has streamlined its policies to offer alternative account
resolutions if a taxpayer cannot pay in full with the return:
The IRS will help to set up an installment agreement when the situation
warrants. Installment payments allow taxpayers to pay the tax debt over
time.
The IRS will consider whether an offer in compromise is an appropriate
solution.
What If I Don't File Voluntarily?
The IRS is taking enforcement steps for those who repeatedly choose not
to comply with the law. IRS employees will prepare returns when
taxpayers do not file. The returns prepared by the IRS might not give
credit for deductions and exemptions a taxpayer may be entitled to
receive. Bills will be sent to those taxpayers for the tax due, plus
penalties and interest.
People who repeatedly don't comply with the law are subject to
additional enforcement measures..
How Can I Avoid Owing Money on Next Year's Return?
Many people don't file tax returns because they don't have enough money
to pay the tax they owe. They find out after completing their return
that their withholding or Estimated Tax payments do not equal their tax
liability.
To help avoid this situation, the IRS can advise taxpayers how to ask an
employer to withhold enough tax from their pay. For any income that is
not subject to withholding, the IRS can provide information necessary to
make quarterly payments to cover any amount to be owed. To make payments
electronically, see Ways to Pay Taxes or go to www.eftps.gov.
Changes in financial circumstances could have an impact on taxes. For
example, an increase in income, divorce, or selling an asset, may
require adjustments to withholding or estimated payments.
By taking these steps, taxpayers will be better able to meet their tax
obligations and avoid tax day surprises.
Will I Go to Jail?
A long-standing practice of the IRS has been not to recommend criminal
prosecution of individuals for failure to file tax returns, provided
they voluntarily file, or make arrangements to file, before being
notified they are under criminal investigation. The taxpayer must make
an honest effort to file a correct return and have income from legal
sources. A letter from the IRS concerning taxes is not a notice that a
taxpayer is under criminal investigation.
The IRS helps to get people back into the system as part of its
long-term plan to improve voluntary tax compliance. The IRS wants to get
people back into the system, not prosecute ordinary people who made a
mistake. However, flagrant cases involving criminal violations of tax
laws will continue to be investigated.
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