Reasons to file your tax return even if you cannot pay
- You avoid the failure to file penalty
- You avoid substitute returns filed by the IRS.
- You get to take your adjustments, deductions, and exemptions which are denied to you on a substitute return (filed by IRS for you which is inevitable if you receive W-2 or 1099 income).
- You start the statute of limitations clock ticking for audit of your return (3 years from tax assessment date).
- You start the statute of limitations clock ticking for collection of the tax, interest, and penalties on your return (10 years from assessment).
- You make your taxes, interest, and penalties (1040) eligible to be discharged in Chapter 7 Bankruptcy (about 3.5 years after filing each if assessed promptly).
- You stay in good graces with the IRS. Not a small thing when an offer in compromise is subject to IRS discretion.
- Solving problems is a whole lot easier.
- You might get jailed for failing to file, but not for failure to pay unless you hide income.
Since the taxpayer hasn't been filing or corresponding with the IRS, any notices could go to an old address and the taxpayer could be UNAWARE OF THE IRS COLLECTION ACTIVITY UNTIL IT IS TOO LATE TO PROTECT PAYCHECK, BANK ACCOUNT OR POSSESSIONS.
What happens if you don't file?
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