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What happens? Bad Things.

November 11, 2008

The Wandering Tax Pro explains "What Happens if you do not file your Federal Income Tax Return":

...filing a tax return starts the clock running on the statutory three (3) years that the IRS has to audit the return. The IRS has three (3) years from the due date of a return – again April 15 if filed on time or October 15 if extended – or the date the return was actually filed, whichever is later, to audit the tax return. If you file your return after October 15th the clock does not start until the return is filed.

And perhaps most important, the monthly penalty rate for “filing late” with a balance due is ten times as much as that for “paying late”.

And that's just the beginning, as the post explains in great detail. The two worst downsides: If you have a refund coming, you lose it after three years of non-filing; if you owe, you dig yourself a great big hole will take you years to climb out of.

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Comments

I did run into an example of a tremendous benefit that can be derived by an individual who fails to file income tax returns. This individual earned high self employment income during a 10 year period during which he did not file tax returns or pay any tax. As is so often the case, he has precious few assets left and after reaching Social Security benefit age, he caused tax returns to be filed. He had no funds to pay any tax and yet he was eligible to receive, and does receive, Social Security and Medicare benefits. The IRS has the responsibility to collect tax, whereas, the Social Security Administration has the obligation to pay benefit. Obviously, this is not a recommended wealth accumulation plan.

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