Consequences of Having Unfiled Tax Returns
The consequences coming from non-filed returns can be absolutely severe for noncompliance. Even if people don’t owe any tax, it still be extremely important to file. Let’s look at what happens unless people file tax returns.
1. Non-filling Letter
As someone has a late tax return, the IRS will send out letter having an assortment of code numbers like CP515, CP516, CP518 and CP515B. Uncle Sam will eventually step up their aggressiveness in the matter and send a notice relate to levy assets.
There may be penalties or even the potential for criminal sanctions for not paying the tax. Be aware that the failure-to-file penalty comes to 5% per month of the unpaid tax bill for a maximum of 25%. The fine is up to $25,000 per year and the time in the slammer is as long as one year for each year having an unfiled tax return. To get more detailed information in terms of two penalties applied, go to this link.
3. No Refunds
According to the rules, once a refund is older than three years, they can no longer be claimed and can’t be applied to other year income tax liabilities. In other words, people could potentially lose the opportunity to get back money entitled to.
4. Get trouble in seizing assets
The IRS may foreclose cash by seizing paychecks and bank accounts from non-filers. This happens through an automated computer collection process. Generally, the notices of asset seizure is automatically sent to the employers and the banks. Non-filer’s paychecks and bank accounts are regarded as assets worthy of taking by the U.S. government, so they will certainly seize them.
Besides, the IRS could start some serious collection activities, including tax liens, wage garnishment, bank levies, property seizing if they have both loan and unfiled tax returns.
5. Substitute for returns
Due to late-file returns, the IRS automatically completes a substitute federal return (SFR) - put together a tax return on your behalf. If you owe more than $25,000, you’ll also probably get a visit from a revenue officer.
In spite of having difficulty putting together unfiled tax returns, you’ll need to find the right forms as well as get the necessary documentation about income and deductions like bank statements. Owing to the complexities, the recommended approach is to get the help of a qualified tax professional.
6. Loan complication
Loan approvals may be delayed as having non-filing tax returns. Copies of filed tax returns must be submitted to financial institutions, mortgage lenders/brokers, etc. whenever buying or refinancing a home, getting a loan for a business, or applying for federal aid for higher education.