Ok, I ask because a family member of mine, codename: X, last filed a tax return in ’95 or ’96 and then decided it would be better to not file the following year due to a measly tax bill of a few hundred dollars (ridiculous, I know). Fear of penalties, further tax debts, and gross financial irresponsibility kept X from filing year after year since then. I guestimate that X’s tax debt for each of the missing years was on the order of maybe $1k or less per year, (not allowing for penalties & interest). I assume the IRS is busy chasing bigger deadbeats and that because of the smallish cumulative sums we’re talking about here; X isn’t even on their radar.
Cut to today: X is now retired and living on a reduced income. I ran the numbers and found that X is eligible for a decent refund for 2003. I suggested that X go ahead and file the return, on the assumption that the overworked IRS may not even catch on to X’s past delinquency, and even if they do, can withhold X ‘s refund to help satisfy past debt. X is wary of this strategery and the possible bigger repercussions, but also wants to get back on the right side of the law.
Any dopers have knowledge or experience with such a matter? Please no diatribes… Just like you, I pay more than my fair share to support deadbeats like this too.
No personal experience, but I know your relative should get right with the IRS. If he didn’t owe for all of those years, it’s not going to be too bad. He’ll pay a penalty of about 25% for what he owed the one year plus interest, but he is entitled to his refunds for the other years. If he only owed a few hundred dollars, he may still get money back and he will be right with Uncle Sam. More importantly, he won’t have to fear an audit or charges.
I had a cousin who worked for the IRS and she told me that indeed a good poriton of the errors are brought to the attention of IRS personnel as people feel guilty about past “mistakes” and then start doing it correctly. Then the IRS wants to know why all of a sudden it happened.
When I used to audit hotels this was a VERY good way to catch dishonest employees. As a matter of fact, we had this young girl from Mexico named Lucy. She helped me catch more crooks. What happened was the other desk clerks would not try to steal if anyone else was around. But if they were working with Lucy they thought. “Oh a dumb Mexican girl.” (that is there attitude not mine) And they would go ahead and steal, while she was working with them, thinking she was too dumb to notice.
But Lucy did. Then she would watch and try to copy them, but she couldn’t do it right and get confused and ask me for help to fix her shift. I would see what she did and fix it. Of course this meant she never actually STOLE, but she exposed the methods others were using without her or the other person knowing.
There is a reasonable chance they’ll "freeze’ his refund until he either files or explains why he didn’t. Since he does not have a valid excuse, they’ll just let him file (and Leenmi is right, the penalty is only something like 25% + interest) and then apply this refund to his past taxes.
Really, he should just file. The worry is not worth it.
My brother’s experience (and what I’ve been told by lawyers) is that the IRS is very forgiving of “honest” errors. And very unforgiving of deliberate evasion. I suspect that the amount comes into play as well, they don’t want to spend thousands of dollars of time and effort to go after a couple hundred in taxes.
And they do seem to take “stupidity” as an “honest” error. For instance, my brother had several years where his income was all in cash (he was a drummer in a band, they got cash from the bar owners when they played), and he just didn’t think he needed to pay taxes. Dumb, but honest. And the IRS was fairly easy and nice about working out arrangements.