The tax season can be stressful, but the average taxpayer can submit their tax returns on time. But what happens if you don’t file your return? Companies that you work for provide your income information to the Internal Revenue Service (IRS), so the IRS has a good idea of what you earned and what you owe.
How does the IRS file a substitute return?
Let’s say you’re a freelance graphic designer. You work for various companies as an independent contractor. These companies send you copies of 1099-NEC forms each year to report the income they paid you. The assets are sent to the IRS.
Assessment Letter
You may find out that the IRS has prepared a substitute tax return for you when you receive an assessment letter in the mail. The letter informs you of the proposed amount of taxes you owe based on the information the IRS has: W-2 forms, 1099 forms, and other tax documents on file.
Notice of Deficiency
The IRS will send a second letter, known as a notice of deficiency, if you do not respond to the assessment letter in a timely manner. This letter is sent via registered mail, meaning you will need to sign for and acknowledge receipt of the letter upon its arrival.
How does the IRS calculate the tax?
The IRS’s calculation of the tax you owe is likely to be much higher than it should be because it will not take into account any tax deductions you may qualify for and can claim. The IRS will prepare a substitute return that is in the government’s interest.
The Statute of Limitations for Refunds
The statute of limitations for refunds is three years from the original due date of the return. Refunds expire if the return is filed outside this time frame. The IRS cannot reissue the refund to you, nor can it apply the refund to an outstanding balance from another year. It also cannot apply the refund as an estimated payment for a future tax year.
Be Prepared to Wait
It may take several weeks to several months – sometimes up to 10 months to a year – before the IRS finishes processing the returns that are eventually filed, but it will refrain from attempting to collect the tax during this time. As long as the IRS has received the original returns and is working on them, it will put a temporary hold on the matter.
What to Do If the IRS Files a Substitute Return?
Keep track of as much documentation as possible if you find yourself in this situation. This documentation may include: any notices or letters from the IRS, any tax forms or documents like W-2s and 1099s, mortgage interest statements, income from interest, a tally of your business income and expenses if you are self-employed, and your last tax return that you may have filed.
Questions to Ask
Taxpayers should ask four questions of any tax professional when trying to deal with substitute returns: How many years of unfiled tax returns need to be filed? Will you receive money if the IRS owes you? Should you mail the tax returns or deliver them in person to an IRS office? Who will work with you from start to finish? Will this matter be handed off to someone else?
Frequently Asked Questions
How long can you go without filing tax returns? You can generally go as long as it takes for the IRS to issue you a substitute return and contact you about it via an assessment letter. The IRS can eventually take action to recover what you owe if you do not respond to the assessment letter.
Can you face penalties for not filing all your tax returns?
Yes. You can face criminal penalties for tax fraud if the IRS believes you intentionally concealed or misrepresented some taxable income.
Source:
https://www.thebalancemoney.com/when-you-haven-t-filed-tax-returns-in-a-few-years-3193355
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