Why Taxpayers Should File Past Due Returns Now.
A good number of clients have not filed tax returns for many years. Before the IRS will agree to an installment arrangement, or compromise the tax, the taxpayer must be current on filing of returns. That does not mean that he or she must be paid up, only that all returns must be filed. By itself, this is a good reason to file returns even if a taxpayer does not have the money to pay. But there are other good reasons.
Avoid interest and penalties
If you file past due returns and pay now, it will limit interest charges and late payment penalties.
Claim a refund
If a taxpayer is due a refund for withholding or estimated taxes, they must file a return to claim it within 3 years of the return due date. The same rule applies to a right to claim tax credits such as the Earned Income Credit.
Protect Social Security benefits
If you’re self-employed and do not file a federal income tax return, any self-employment income will not be reported to the Social Security Administration and you will not receive credits toward Social Security retirement or disability benefits.
If you fail to file, the IRS can file a substitute return for you. This return might not give credit for deductions and exemptions to which the taxpayer is entitled. It will always cost the taxpayer more to have the IRS file because the IRS uses 1099’s, W-2 and other reports of income, and does not bother with deductions.