Are you one of the estimated ten million American who have not filed tax returns for several years? The bad news is that you have little chance of escaping detection forever and that is what you would have to do. If you have not filed a tax return, you have not started the statue of limitations for that particular tax year. This means that there is no limit to the amount of time that the IRS can pursue you; however, as a practical matter, that IRS rarely enforces filing requirements after six years. Be aware that continued non-compliance by flagrant or repeat non-filers can result is additional penalties and/or criminal prosecution.
If you do not file, the IRS may file an SFR tax return for you. SFR stands for Substitute for Return – this is the IRS version of your un-filed tax return. SFR returns are filed in the best interest of the government, which means that IRS will file you as ‘marred filing separate’ and the only deductions you will receive are the standard deduction and one personal exemption. You will not get credit for other deductions for which you may be entitled to. Plus, an SFR is not dischargeable in bankruptcy because you did not sign the return. Once the IRS files the assessment on this SFR, they will begin collection efforts. You can, however, file your own return to replace the SFR; print “SFR Reconsideration Requested” on the top of your new, replacement return prior to filing with IRS.
It may take you time to get your tax returns prepared, so at least notify the IRS of your delinquency and your intent to file. In this notification, consider requesting a record of account or account transcript for all delinquent years and a wage and income transcript of your income reporting documents for any year in which you did not file so you are sure to include all income when you do file your returns. The IRS should give you a reasonable opportunity to file, and your disclosure should protect you from criminal prosecution.
Do not let your inability to pay stop you from filing. Failure to pay the IRS is only a civil matter; however, failure to file is a misdemeanor under IRC 7203 and may in egregious cases be elevated to felony under IRC 7201 Tax Evasion. Indicators of fraud include: History of non-filing, repeated contacts by the service, indication that the non-filer had knowledge of the filing requirements, age and occupation of the taxpayer, substantial tax liability after withholding credits and estimated tax payments, large number of cash transactions, and indications of significant income per Information Return Processing or Taxpayer Delinquency Investigation documents.
So go ahead and file your tax returns even without the tax payment. You will be assessed interest and penalties for late filing and paying, buy you will protect yourself from possible criminal prosecution and avoid those more costly fraud penalties imposed on non-filers.