Filing taxes before the annual deadline, or later with a valid extension, is essential whether you are filing as an individual or on behalf of a company you operate. Unfortunately, some taxpayers may not fully appreciate the risks and potential penalties for failing to meet their tax return deadline. You could be subject to expensive monetary fines or even be charged with a criminal offense. If you are concerned about missing the filing deadline for your income tax return, you should work with an experienced and dual-licensed California Tax Attorney and CPA as soon as possible. At the Tax Law Offices of David W. Klasing, we are committed to rendering our legal and accounting services to clients who require assistance with managing their tax liability. Our firm recognizes that tax season could be a stressful experience for many taxpayers, and accordingly we provide legal service that meets your specific needs. The Tax Law Offices of David W. Klasing would like to inform you of common tax issues faced by non-filers that our firm could help you resolve.
Inability to Collect Tax Refunds for Non-Filers
One major issue that tax non-filers face is the inability to collect their tax refund. Federal and State tax refunds are subject to varying statutes of limitations. Typically, the statute of limitations is linked to civil lawsuits and criminal cases; however, it could also be applied to late tax filings. The statute of limitations places a deadline on how long a person must perform a legal action.
The statute of limitations for collecting a federal income tax refund is three years after the original filing date. (four years for California) If a taxpayer fails to file their income tax return within these three years, the IRS will prevent the taxpayer from doing the following:
- Collecting a refund check
- Applying for tax credits
- Overpaying on taxes
There are some cases where a taxpayer may be able to delay the statute of limitations for their income tax returns. However, you should not assume that you have the option to delay your filing deadline without speaking with an experienced California Tax Attorney.
Loss of Social Security Benefits for Tax Non-Filers
Taxpayers who are self-employed and do not file an income tax return could also potentially affect their Social Security benefits. Specifically, when a self-employed taxpayer does not file their tax return, they cannot receive credits for Social Security retirement or disability benefits because their income was not reported to the Social Security Administration.
Issues Obtaining Loans for Tax Non-Filers
If you may need a personal loan or a loan for your business, you should be aware that the loan approval process could be affected by unpaid taxes. As you are likely aware, copies of recent tax returns must be provided to financial institutions and other parties when seeking a loan for a business, personal matters, or even for higher education.
There are other issues that could affect a taxpayer who fails to file their income tax return on time. If you would like to know more about exceptions that could be made for non-filers, you should continue reading and consider working with an experienced dual-licensed California tax lawyer and CPA.
Tax Penalties for Non-Filers
There are several penalties that taxpayers may be subject to for failing to file their income tax returns. If you are concerned about how these penalties could affect your tax liability, you should contact an experienced California Tax Attorney for unfiled taxes.
Substitute Returns
When a non-filer does not handle their past due tax returns, the Internal Revenue Service may choose to file a substitute return on their behalf. California will issue a notice of proposed assessment. However, a substitute return that is filed by the IRS will typically not consider deductions, exemptions, or other tax breaks that the non-filer qualifies for. As a result, a substitute return will often harm a non-filer rather than help them.
When preparing to file a substitute return, the IRS will often send the non-filer a “Notice of Deficiency.” This notice will indicate that a non-filer has 90 days to file a tax court petition otherwise the substitute return becomes legally collectible after 90 days even where often punitive in nature because it does not consider deductions, exemption of other tax breaks. It Is wise to hire legal representation to prevent the substitute return from becoming collectible by filing a tax court petition and to help you settle with appeals via a tax return that takes advantage of exemptions and deductions that will have been routinely denied with a substitute return.
Tax Liens and Levies
Tax liens and tax levies are other penalties that a taxpayer could face for missing the deadline on their income tax return. The IRS could place a tax lien on a taxpayer’s property if they do not pay their tax debt. The tax lien could be placed on personal property, real estate, and many other assets owned by the taxpayer.
Prior to issuing a tax lien, the IRS will assess the taxpayer’s liability and send the taxpayer a “Notice and Demand for Payment.” If the taxpayer does not respond to this notice, a federal tax lien will be placed on their property. A tax lien could be applied to property owned by an individual or property owned by a business.
When a tax lien is placed on a non-filer’s property, it could affect them in several ways. For example, creditors will likely be apprehensive about loaning money to the taxpayer or could also be concerned about whether debts will be satisfied.
If a non-filer continues to ignore their tax liability, the IRS could levy the property named in the lien. This could be devastating for a non-filer, especially if the IRS levies property that is needed to operate a business. The IRS will ordinarily property that is needed to pay off the non-filer’s assessed tax debt but will commonly sell a taxpayer’s seized assets via auction for pennies on the dollar.
Fortunately, a tax lien and levy are often a last resort for the IRS. In many cases, the IRS would be inclined to negotiate an agreement with the non-filer to pay off their tax debt. The Tax Law Office of David W. Klasing could help you begin negotiations with the IRS to manage your tax liability.
To learn more about how a non-filer may be able to claim an exception for failure to file an income tax return, you should continue reading and contact an experienced California unfiled taxes attorney today.
Exceptions that Allow Tax Non-Filers to Avoid Tax Penalties
There are various reasons why a tax non-filer may fail to file their taxes on time. For example, a non-filer may have misinterpreted their tax liability or falsely believed that they had more time to file their tax return. Fortunately, there are some exceptions that may permit a taxpayer to avoid tax penalties for failing to file on time.
The IRS may consider a variety of factors when determining whether a non-filer had a valid excuse for failing to file on time. For example, the IRS may look at the non-filer’s justification for missing the deadline and may look at whether the taxpayer complied with tax regulations in previous years.
The following is a list of exceptions that may allow a tax non-filer to avoid tax penalties for a late return.
Death, Serious Illness, or Unavoidable Absence
If a taxpayer died, had a serious illness, or an unavoidable absence, or is dealing with the death or serious illness of a family member, this could be used as a valid ground for a late tax filing. Under these circumstances, a taxpayer may be exempt from filing their tax return on time as an individual or on behalf of a corporation, trust, or similar organization.
Note, however, that the IRS will still consider the following factors before approving this exception to the filing deadline:
- The familial relationship between the parties in question
- The date of the decedent’s death
- The duration, severity, and dates of the taxpayer’s illness or the family member’s illness
- The date of the taxpayer’s absence and the reason for their absence
- Why the event in question prevented the taxpayer from filing
- Whether the taxpayer tried to handle their tax liability within a reasonable time after their illness or after the death of a family member
When a non-filer misses the income tax return filing deadline for a company, they must be able to show that they solely had the authority to file the tax return on behalf of the business. If another official of the company was authorized to file the income tax return, there must be a valid reason why that official did not file the return.
Natural Disasters
If a taxpayer was affected by a natural disaster, such as a fire or a similar matter, this may be enough to justify an extension for the taxpayer. When determining whether a taxpayer could receive an extension of the filing deadline, the IRS may look at the following:
- How the natural disaster affected the taxpayer’s business
- The steps taken by the taxpayer to meet the deadline
- Whether the taxpayer handled their tax debt when they were able
Inability to Obtain Records
Another possible exception that could be used by a non-filer is the inability to obtain records to file a tax return prior to the deadline. The taxpayer must be able to show that the records needed to file their return were not obtainable despite their best efforts. The following factors will be examined when the IRS considers this exception:
- Why the taxpayer needed the records to comply
- The reason the records were unavailable and what the taxpayer did to recover the records
- When the taxpayer realized they did not have the necessary records
- Alternatives available to recover the records
- Whether the taxpayer consulted with the IRS about options to file their tax return
- Documentation that explains the steps taken to secure the records
This is not an exhaustive list. There are other factors the IRS may consider when a taxpayer is arguing this exception.
Ignorance of the Law
Ignorance of the law is another exception that taxpayers occasionally attempt to utilized to avoid penalties for past due tax returns. Typically, ignorance of the law is not a valid reason that a taxpayer could avoid liability for a past due return. However, the IRS may make an exception under the following circumstances:
- The education of the taxpayer
- Whether the taxpayer was previously subject to the taxes
- The taxpayer was previously penalized for failing to file taxes
- Recent changes to tax law regulation that a non-filer could not reasonably know about
- The complexity of the compliance issue in question
There are several other exceptions that a taxpayer may utilize to explain why they missed the filing deadline. If you are unsure about whether you have a valid exception to avoid tax penalties for a failure to file your tax return, you should consult with an experienced Tax Attorney for unfiled returns.
Experienced California Tax Attorney for Non-Filers Facing Penalties
If you are delinquent on filing an individual tax return or a tax return for your business, you should contact a skilled California Tax Attorney as soon as possible. At the Tax Law Offices of David W. Klasing, our California dual licensed Tax Attorneys and CPAs possess a wealth of experience in handling a variety of tax and accounting matters for our clients, and we would welcome the opportunity to discuss how we could help you. If you need assistance managing your past due income tax returns, call the Tax Law Offices of David W. Klasing at (800) 681-1295 to schedule your confidential consultation. You may also use our website to schedule a consultation with our dedicated California tax attorneys today.
Questions and Answers on Unfiled Back Taxes
- What are the common issues that non-filers face?
- Risk of audit after filing delinquent prior year returns
- Can substitute return deficiency be discharge in bankruptcy
- Substitute return modified by subsequent delinquent return?
- Do I file every delinquent return for each missing year?
- How does the IRS identify non-filers?
- How important is it to the government that I didn’t file?
- Delinquent tax return criminal prosecution likelihood
- Will I get a refund on a delinquent tax year?
- What happens after enforcement action has begun?
- Should I use an attorney, EA or a CPA to represent me when I re-enter the tax system?
- Why do people drop out of the tax system?
- What happens after the IRS identifies me as a non-filer?
- IRS has not previously filed substitute returns
- Tax attorney representation when re-entering tax system
- How will the government force me to file returns?
- What penalties can IRS impose on delinquent tax filings?
- What should I do to re-enter the tax system?
- Can Law Office of David W. Klasing help me re-enter system?
- Will tax collection taken by authorities affect my credit
- I concealed bank accounts from the government
- Forgetting or failing to file tax return
We Are Here for You
Regardless of your business or estate needs, the professionals at the Tax Law Offices of David W. Klasing are here for you. We are open for business and our team will help ensure that your business is too. Contact the Law Offices of David W. Klasing today to discuss your business with one of our professionals.
In addition to our main office in Irvine, the Tax Law Offices of David W. Klasing has unstaffed (conference room only) satellite offices in Los Angeles, San Bernardino, Santa Barbara, Panorama City, Oxnard, San Diego, Bakersfield, San Jose, San Francisco, Oakland, Carlsbad and Sacramento. During the COVID-19 pandemic, our staff are working from home, but have full virtual meeting capability.
