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Filing Tax Returns When You Already Have Tax Debt

Filing Tax Returns When You Already Have Tax Debt

You are unlikely to receive a refund check if you already have a significant amount of IRS tax debt. The IRS will generally use the Treasury Offset Program (TOP) to seize your refund money before you ever get to see it.

However, there are still many good reasons to file returns when you have tax debt. Filing your tax returns has benefits if you are in any of the following stages of tax resolution:

  • You have tax debt problems, but you haven’t tried to resolve them yet.
  • You’re working on a tax resolution plan.
  • You’ve agreed to terms with the IRS but are still in your compliance period.

Refunds Are Applied Towards Your Debt

When your refund is offset, that money is applied towards your tax debt. It may not seem like a big payment if you owe $25,000, $50,000, or $100,000, but every dollar counts.

If you don’t file your tax return, the IRS may file a Substitute for Return (SFR) on your behalf. The SFR could even show that you owe taxes when you should get a refund because it won’t give you all of your deductions. So instead of reducing your balance, you could end up owing even more by failing to file a tax return.

Qualify for Tax Resolution

The IRS won’t even consider an Offer in Compromise and may reject an installment agreement request if you have unfiled tax returns. They won’t be interested in settling your tax debt if they aren’t even sure how much you owe for all tax years.

From your perspective, it doesn’t make sense to work through the tax resolution process without filing your delinquent tax returns first. If you’re finally going to figure out a solution to your tax debt problems, you might as well do it for every tax year.

Stay in Tax Compliance

Once you agree to terms on an installment agreement or Offer in Compromise, you still have to stay in tax compliance. This includes filing all required tax returns on time.

Imagine spending six months to a year getting your Offer in Compromise accepted. Then, three years later, you fail to file a required tax return. The IRS can rescind the Offer and reinstate the full amount of tax debt you owed before the Offer was accepted, minus any payments you’ve made.

Avoid this outcome by filing your returns and otherwise following the tax laws during your post-acceptance compliance period.

The Gartzman Law Firm offers tax settlement help for both federal and state tax debt. Use our contact form to request a consultation with an Atlanta tax resolution attorney.