Kevin McCormally's "Tax Tips"-Don't Be Afraid To File
Monday, March 20, 2006LINDA O'BRYON: In tonight`s tax tips, our tax guru says if you`re afraid to file because you`ve skipped filing your taxes in the past, you shouldn`t be. Here`s Kevin McCormally, editorial director of "Kiplinger`s Personal Finance."
KEVIN MCCORMALLY, EDITORIAL DIR., "KIPLINGER`S PERSONAL FINANCE": A nice thing about answering questions on the web is that the anonymity prompts frank discussion. Like the question I got from a viewer last week. I make about $75,000 a year, he wrote, and haven`t filed a tax return for the past three years. Should I hire a lawyer?
Actually, I hear from a lot of folks who are worried because they haven`t filed. Just how much trouble are they in? My first question is a simple one. Did you really owe the government money? And, in almost every case, they tell me they always get refunds. It`s not that they didn`t have the money to pay their taxes - heck, they had paid their taxes via withholding. They just didn`t get around to the paperwork. When I hear that, I can deliver good news. They`re not in any trouble at all.
In fact, filing those old returns will bring them checks from the U.S. Treasury including interest on the money that Uncle Sam owes them.*see below* Think this is rare? Well, think again. Each year, about 2 million people who should file returns to get refunds simply don`t do it. Their money is waiting for them at the IRS, but it only waits for three years. Right now, about $2 billion in refunds is waiting for workers who didn`t file 2002 tax returns. If they don`t ask for that money by April 17, the government gets to keep it forever.
Why would someone fail to file to get money back? I suspect that in a lot of cases, folks who missed the April 15 deadline were simply afraid to come forward. For those who do owe the IRS, coming forward can be costly. The penalty for failure to file a return can be as much as 25 percent of the tax owed with the return. But those penalties are often reduced and tax scofflaws rarely go to jail. Compared to the two million people who stand to lose refunds, for example, fewer than 1,000 are sent to prison each year for criminal tax fraud. I`m Kevin McCormally.
3-27-06 -- Correction: Although there is no penalty for filing a return late if you have a refund coming, the IRS does NOT pay interest on such refunds if the return for the year in question was not filed by the original due date of that return. I apologize for the error.
