If you voluntarily file back income taxes the consequences for filing late fail in comparison to having the Internal Revenue Service (IRS) pursue you for outstanding taxes. The longer you wait to file unfiled taxes it’s likely you’ll pay more in penalties and interests. This reason alone should be enough for taxpayers who haven’t filed previous returns to get them submitted but unfiled returns for a lengthy period of time could lead to extensive tax debt .
If you owe taxes, penalties and interest will continue to accrue until the amount is paid off or paid in full. There is a possibility the IRS may file a return for you; also known as a substitute return. When the IRS completes a substitute income tax return, they often don’t include credits or deductions that may lower your amount or increase your refund if you are due for one.
If a substitute return is completed, they may begin collecting outstanding taxes due based on this return. They may look to place a lien or levy against personal property. If they complete a return you still have an opportunity to complete unfiled returns with deductions and credits applied. If you voluntarily file, you may be eligible for a payment plan to resolve your debt and possibly settle for less than what is owed.
If the IRS catches up with you about unfiled or unpaid taxes, depending on the amount owed and how long you continue to fail in filing or submission of payment, it could be considered tax evasion, lead to a hefty fines or even prison time. Review questions or concerns with a tax attorney or tax expert.