Saturday, October 15, 2011

Can I Go To Jail For Un-Filed Taxes?

If the IRS determines that you are a "habitual" non-filer, they may refer your case to the CID - Criminal Investigation Division, and this department will determine if you should be prosecuted. Failure to file a tax return, when you are required to do can be a misdemeanor, punishable by penalties, interest, wage garnishment, and jail time. However, in some cases you can be charged with a felony and subject to a 5 year prison sentence. (With a misdemeanor you can receive up to one year in jail and $25,000 in fines for each year that you didn't file).
Because I am not an attorney, I will limited my legal words to the above paragraph. Just realize that the answer is "yes" You can go to jail because of un-filed tax returns.
The point I am trying to make is, tax payers who have years of un-filed tax returns are in a criminal status. They have one foot on legal and one foot on illegal. Un-filed taxes, year after year is a serious matter, which can bury a tax payer in debt, for a life-time. Even when a tax payer doesn't file a tax return, the IRS will file what is called a "substitute tax return"
In other words, the IRS files a tax return for you. The problem is, 1) the IRS is not aware of all of your possible deductions, and 2) if the IRS believes that you owe back taxes, the penalties and interest will continue to occur on the tax liability, until paid, or placed into bankruptcy. (See bankruptcy attorney) A tax payer could end up owing more than the actual tax bill. (Usually the IRS does not collect on debts over 10 years old - there are stipulations)
So to make a long story short. There are many variables in the consequences of un-filed tax returns. Even if you don't have the money, it is always best to file a return and work out the details with an Enrolled Agent or Tax Attorney on how to eliminate the debt, decrease the taxes, or request an Installment Agreement.
It is certain, if you owe the IRS and you have assets, the assets are subject to IRS rules. Trying to hide the assets before the IRS catches up to you, is not a good idea. This is only a short cut to the jail house. Talk to an attorney.
The best solution is to file the tax return(s), even if you don't have the money. If there was illness, a hurricane, flood, fire, death in the family, insanity, depression, drugs, prescribed medications, etc., the IRS may reduce or eliminate the penalties. (You will need to provide proof)
If you lost your job, and have been under a cloud, just be honest. Talk to your doctor, document the doctor's visit, file your taxes and ask for an abatement of penalties. The IRS will not consider any viable solutions for your tax problem, until "all" un-filed tax returns are filed.
IRS CIRCULAR 230 Disclosure:

Under U.S. Treasury Department regulations, we are required to inform you that, unless expressly indicated, any tax advice contained in this postl, or any attachment hereto, is not intended or written, to be used, and may not be used to (a)avoid penalties imposed under the Internal Revenue Code (or applicable state or local tax law provisions) or (b)promote, market, or recommend to another party any tax-related matters addressed herein.

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