Points to Consider: What happens if you don’t file a return when you owe nothing?
When your return has not been filed, you are in one of two situations. Either you have not filed a return and you owe no tax, or you have not filed a return and do owe tax. If you have not filed a return and do not believe you owe any tax, read below for some points you might want to consider.
Do not leave money on the table if you have not filed and are due a refund.
What happens if you do not file depends on your tax account. As pointed out in another article Getting to Zero each year the IRS sets up a tax account for each taxpayer. Simply put, each year the IRS totals up the credits (amounts paid in) and debits (amounts due to the government) in each tax account. After netting the total debit and credits, each taxpayer either owes tax to the government or the government owes money to the taxpayer. In rare instances, amounts owed exactly equal amounts due and they cancel out.
A person gets credits in a tax account through withholding, estimated tax payments, or carryover of prepaid credits from other years. Withholding normally occurs because income has been earned, such as wages or pension payments, and withholding has been either elected or required. Estimated tax payments are made because a person is expecting to have income and wants to have money in the tax account to pay expected tax. Sometimes money has been paid in earlier years for expected income, an excess has been paid in through withholding or estimated tax payments, and the excess has been carried over to a future year. Having amounts paid into a tax account is an indication to the IRS that a taxpayer has received, or expects to receive, income in a tax year. Therefore, if there is an expectation of income, there is probably also an expectation of tax, but the IRS does not know for sure.
That is why the IRS will also look on its Integrated Data Retrieval System to see if your tax identification number has income associated. The system matches income with a person’s tax identification number. If the IRS finds income sources, the IRS will determine whether the potential tax due based on income reported is likely to result in tax due based on how much a taxpayer has paid into a tax account for a given year.
If at the end of a tax year, you have paid more in than tax due, you have a potential refund sitting in your tax account. If you are required to file and do not file, the IRS will not really do very much. The IRS will not send you a refund without your filing a return because the Internal Revenue Code, IRC § 6511(a), requires a taxpayer to request a refund, which means filing a return and establishing your tax liability for a given year. The IRS will simply let what appears to be a potential refund sit in a tax account until the statute runs for claiming a refund. Then the government gets the money instead of you if you are due a refund and just let it sit there. Delinquency penalties such as Failure to File and Failure to Pay are based on amounts due. Consequently, if there is no amount due (a refund situation), there is no penalty. The IRS cannot make you file if you do not owe tax and will rarely chase you down to file a claim or return for a refund. In my 30+ years working as a Revenue Agent, management only sent me out one time to chase down and pester that person to file for a refund. Do not leave money on the table if you have not filed but are due a refund.
Generally, a person has the later of two years from the date the tax was paid or three years from the date a return was filed to file a claim for refund. However, if you are due a refund and have not filed a return, IRC § 6511(a) states that you need to file a return within two years from the date the tax was paid to receive a refund. If you are owed a refund, do not let the time run out. The IRS will even pay interest on the refund, and there is no penalty if there is no tax due.
If you have not filed and are due a refund, I can help. Contact Me before it’s too late.