Why Timely Filing of Your Tax Returns Matters

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Failing to file your income tax returns on time can lead to significant problems with the IRS. When you neglect to submit your returns, even after receiving multiple notices, the IRS may step in and prepare a "Substitute for Return" (SFR) on your behalf.

Here’s how it works: the IRS uses income information it has on record, such as wages, interest income, subcontractor payments, and property sales. They’ll assume you are single, claim no dependents, and use the standard deduction.

The result? A much larger tax bill than if you had filed your return. But the trouble doesn’t stop there. The SFR can create additional complications for you, including:

• Inability to set up a payment plan (installment agreement) without first filing the missing returns.

• Ineligibility for an Offer in Compromise to settle your tax debt for less than you owe.

• Potential issues with bankruptcy, as old tax years may not be discharged if the returns were never filed.

• Ongoing IRS collection actions, including liens or levies, on the unpaid SFR balances.

While there are various reasons someone may miss filing, it’s crucial to understand the potential consequences:

 

Serious Consequences for Failing to File

1. Criminal Charges
   The IRS may view your failure to file as a criminal offense, potentially leading to penalties that could include one year in jail for each year a return is not filed.

2. Substitute For Return (SFR) Filings
   If you don’t file your taxes, the IRS may automatically file a Substitute for Return on your behalf. The key problem with SFRs is that they are filed with the government’s best interests in mind, not yours.

   This means:

   • No deductions you may be entitled to, such as for dependents, home mortgage interest, or business expenses.

   • You’re stuck with the standard deduction and one personal exemption, even if your actual tax situation is much more complex.

3. Limited Options for Resolution
   Filing late or not at all can limit your ability to resolve your tax debt. You may not be able to qualify for an installment agreement or an Offer in Compromise if the IRS has prepared an SFR for you. Additionally, the missing returns could prevent you from discharging certain debts in bankruptcy.

The Bottom Line

It’s always better to file your taxes on time—or at least seek professional help if you’re unable to do so. Ignoring your tax obligations may lead to larger bills, lost opportunities for deductions, and even serious legal trouble. If you’ve missed a few years of filings, getting them resolved sooner rather than later will save you time, stress, and money.