{"id":22040,"date":"2017-06-28T15:00:00","date_gmt":"2017-06-28T15:00:00","guid":{"rendered":"https:\/\/www.hrblock.com\/tax-center\/newsroom\/extension-filers\/"},"modified":"2023-03-01T12:51:00","modified_gmt":"2023-03-01T18:51:00","slug":"extension-filers","status":"publish","type":"newsroom","link":"https:\/\/www.hrblock.com\/tax-center\/newsroom\/irs\/deadlines-and-extensions\/extension-filers\/","title":{"rendered":"File an extension? Better file a tax return."},"content":{"rendered":"

One of the biggest mistakes taxpayers can make is to not file a required tax return<\/a>. The penalty<\/a> for not filing is bad: If taxpayers file five months or more after the due date, the penalty is 25 percent of the tax they owe. If the IRS proves that taxpayers didn\u2019t file because they had fraudulent intentions, the penalty can be as high as 75 percent of the tax they owe.<\/p>\n

The IRS has systems to identify taxpayers who haven\u2019t filed a required tax return. A major way is through third-party information statements, such as Form W-2 and 1099. These statements report taxpayers\u2019 income, and the IRS uses them to identify people who haven\u2019t filed their returns. The IRS also uses taxpayers\u2019 filing history to question whether they should file a return. In all, the IRS believes that more than 7 million<\/a> taxpayers don\u2019t file a required tax return every year.<\/p>\n

The IRS is especially interested in pursuing people who file an extension but don\u2019t file their returns. This past tax season, 11.6 million taxpayers<\/a> filed an extension, giving them six more months to file their returns.<\/p>\n

From the IRS\u2019 perspective, it only makes sense that taxpayers who file an extension would also follow up and file a tax return. After all, with the extension, taxpayers are putting the IRS on notice that they have a tax return to be filed, and that they\u2019ll file it on time.<\/p>\n

What does the IRS do when an extender doesn\u2019t file? A recent Treasury Inspector General for Tax Administration (TIGTA) report provides great insight into the IRS process \u2013 and the need for the IRS to pursue extenders who don\u2019t file.<\/p>\n

The IRS is set to pursue more extenders who don\u2019t file<\/h2>\n

In the study<\/a>, TIGTA investigated taxpayers who filed an extension but didn\u2019t file a return before the extension expired. For 2012 and 2013, TIGTA found 1.9 million of these people. For these two years, a computer glitch in IRS systems meant that it didn\u2019t pursue many of the people who extended their returns but didn\u2019t file. As a result, TIGTA focused on this specific group of nonfilers for the study.<\/p>\n

TIGTA found that the IRS lost more than $3 billion in the 2012 tax year alone from not chasing these nonfilers. Because of the study, the IRS started pursuing some of the 2013 nonfilers. They owed an average of more than $14,000 per return. In fact, extension nonfilers owed almost three times more than the total nonfiler population.<\/p>\n

TIGTA ultimately concluded that pursuing the extenders who hadn\u2019t filed is low-hanging fruit for the IRS. TIGTA recommended that the IRS use its limited resources to chase this population, especially those with higher incomes.<\/p>\n

The IRS agreed with most of TIGTA\u2019s recommendations and agreed to more aggressively pursue extenders who hadn\u2019t filed \u2013 because they likely owe a lot of money. Taxpayers who extended their returns but didn\u2019t follow up and file will likely start receiving IRS notice CP59, First Notice of Return Delinquency<\/a>, a few months after the filing deadline.<\/p>\n

\u201cI couldn\u2019t pay, so I didn\u2019t file\u201d<\/h2>\n

Many late filers ask the IRS to forgive their failure to file penalties, explaining that they didn\u2019t file because they couldn\u2019t afford to pay. The IRS reminds these taxpayers in their penalty relief denial letters that the inability to pay is never<\/em> a reason for not filing a return.<\/p>\n

Fortunately, there are options for taxpayers who can\u2019t pay<\/h2>\n

If taxpayers owe a tax bill, the IRS will work with them<\/a>. These taxpayers can ask for an extension to pay of up to four months. They can also set up a payment plan (called an installment agreement) to pay over time.<\/p>\n

If taxpayers can prove to the IRS that they are in financial hardship, the IRS won\u2019t ask them to pay more than they can afford, within reason. For taxpayers in extreme hardship, the IRS can defer payment (called currently not collectible status) or possibly even settle with the taxpayers for an amount less than the total bill (called an offer in compromise).<\/p>\n

What about ignoring the issue?<\/h2>\n

Not filing and hoping it goes away is never a good option. The IRS will likely pursue these taxpayers \u2013 and the IRS can even file a return for them<\/a>, to start collecting on the balance. That return (called a substitute for return) will have all the penalties and no deductions or credits in the taxpayer\u2019s favor.<\/p>\n

Nonfiling investigations can get serious, with the IRS possibly pursuing more serious civil and criminal charges if taxpayers persist in not filing. What\u2019s more, there\u2019s no limit on the amount of time the IRS has to pursue late returns. However, taxpayers can take comfort that the IRS normally won\u2019t pursue returns past the prior six years (IRS Policy Statement 5-133).<\/p>\n

Help is not far away<\/h2>\n

Taxpayers sometimes let multiple years of unfiled tax returns pile up, assuming their situation can\u2019t be corrected. That\u2019s not the case. Taxpayers who need help filing back tax returns, filing by the deadline, or finding options for payment or penalty relief should consult a tax professional<\/a>.<\/p>\n

The tax professional can help with old tax years by requesting income information from the IRS to help file an accurate return. From the IRS\u2019 perspective, it only makes sense that taxpayers who file an extension would also follow up and file a tax return (even if they are not expecting an IRS refund<\/a>).<\/p>\n

The right course is to file on time, minimize penalties and get into an arrangement with the IRS. Whether taxpayers are late on one extended return, or have many years of returns to file, an experienced tax professional can help them get right with the IRS now and into the future.<\/p>\n","protected":false},"excerpt":{"rendered":"

One of the biggest mistakes taxpayers can make is to not file a required tax return. The penalty for not filing is bad: If taxpayers file five months or more after the due date, the penalty is 25 percent of the tax they owe. If the IRS proves that taxpayers didn\u2019t file because they had […]<\/p>\n","protected":false},"author":554,"featured_media":24505,"menu_order":0,"template":"","tags":[],"news-categories":[23363,23365],"class_list":["post-22040","newsroom","type-newsroom","status-publish","has-post-thumbnail","hentry","news-categories-irs","news-categories-deadlines-and-extensions"],"acf":{"post_rest_thumbnail_alt_id":null},"yoast_head":"File an extension? 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