Two Different Scenarios For Taxpayers Who Haven’t Filed A Return In Three Years
People don’t file their federal tax returns for a multitude of reasons.
Some people are just plain lazy, and they think they can get by without filing. That’s just plain ignorance. Other people actually live below the poverty line and some of these people are not required to file. Some people are simply afraid, knowing they owe the IRS and knowing they cannot pay what they owe. They may be recently divorced or a loved one became seriously ill or their business went south. The reasons are as individual as each person. And then there are the criminally minded. The people who think they are super smart and can outsmart the IRS and actually evade paying taxes. So, you can see, the reasons people have for not filing tax returns run the gamut from ignorance to pure criminal intent.
Scenario #1: You Live Below The Poverty Line But You Could Be Entitled To A Refund
Some people don’t file a tax return because their income is so minimal that they do not need to file a federal tax return. The minimum earned requirement for filing a federal tax return for a single person under age 65 is $12,200. If you earn less than $12,000 per year you don’t have to file. However, many of these people may have money waiting for them at the IRS because they could be eligible for one or more of the refundable tax credits.
For instance, the Earned Income Tax Credit (EITDC) is the federal government’s most substantial refundable federal income tax credit for low- to moderate-income workers. The credit has been around since 1975 and was intended to offset the burden of Social Security taxes —a chunk of your pay over and above federal income taxes—and to provide an incentive to work. That means that certain taxpayers may be entitled to a refund even if they otherwise owe no tax.
And, according to the IRS, as of 2019 there was over $1.4 Billion in undistributed refunds. But, the refunds expire after three years. In this scenario, the IRS is not going to come looking for you. They would just as soon keep the money. But, it could make a big difference in your life. So, if you think you may be entitled to refundable tax credits, give us a call and we’ll see if we can help you.
Scenario #2: You Owe The IRS And You Know You Cannot Pay
This second scenario is more common and far more damaging to the taxpayer. In fact, it’s a criminal violation to not file a federal tax return when you have a filing requirement. Depending on the specific circumstances there are many ways this IRS problem can be solved. And there’s one option that most tax resolution companies don’t talk about. In some instances Bankruptcy may be the best option.
It’s a common myth that taxes can never be discharged in bankruptcy. Bankruptcy can be a great way to eliminate back tax debt; however, there are huge exceptions to this rule because all taxes are not always dischargeable. Bankruptcy laws have become much more restrictive in recent years and filing for bankruptcy won’t necessarily automatically discharge your tax debt. Frequently, it’s the last resort, but for certain clients, it’s the best option. Contact us so we can discuss whether bankruptcy is one of your options.