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Unfiled Taxes and the Substitute for Return

April 29, 2014

If you missed this year’s filing deadline of April 15th, the IRS can file a substitute tax return on your behalf at any time. Even if you cannot pay your entire tax bill, you should file your return on time and pay as much as you can. You can then explore IRS payment plans to reach an agreement for the remaining amount.

It is important to pay your tax liability, partially or fully, so that you are compliant with your tax filing. Even if you qualify for an IRS payment plan, you will be required to file all your past tax returns.

If the IRS does not receive your tax return by the filing deadline, they file a substitute tax return to determine the amount of taxes owed. To estimate the amount of tax you owe, the IRS uses your income as reported to the IRS by your employer(s). When filing a substitute tax return, the IRS does not take responsibility for including every deduction and/or credit that you qualify for. Clearly, this increases your tax bill. For the IRS, the purpose of filing a substitute tax return is to arrive at an estimate of the tax debt so that they can begin collection actions.

With this estimation of your tax liability, the IRS can begin collection efforts. On IRS notices regarding your tax debt, they include the amount of taxes you owe and how you can resolve them. If you do not communicate with the IRS and inform them about the correct amount of taxes you owe, the IRS’ estimate may become final.

Penalties are charged on tax debt on a percentage basis. Therefore, the amount in penalties the IRS charges each month is dependent upon the amount of tax debt.

Even if the IRS has filed a substitute for return, you can still file your own tax return. When you file your tax return with the exemptions, credits and deductions that you qualify for, the IRS will accept your calculation of taxes and update the tax bill figure.

Non-filing and non-paying of taxes can result in federal tax lien and levy, if no efforts are made by the taxpayer to resolve the tax debt. Therefore, it is advisable to explore the various IRS payment plans to comfortably resolve the case and avoid aggressive collection actions by the IRS.


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