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What happens if you don't file a tax return?

How to avoid an IRS audit
How to avoid an IRS audit 02:52

If taxes are the last thing on your mind right now, you're in good company. With a national pandemic and the worst economic contraction in recorded U.S. history, taxes might not be the fist thing on your mind. If you need more time than the already-extended July 15 deadline provides, filing for an extension until October 15 is straightforward and takes just a few minutes.

But what if you haven't filled out your tax return in years? What if you never file taxes?

In the best-case scenario, non-filers could be missing out on money owed to you, experts say. In the worst case, you could be on the hook for penalties and interest, and enter into a protracted battle with the IRS.

Sometimes people skip filing a tax return once and get stuck not filing year after year because they're afraid of the penalty, according to Nina Olson, the founder of the Taxpayer Rights Center.

"Something I see a lot is people get behind one year, and then they think, 'Well, I'm not going this file this year because I owe money,'" Olson told CBS News in a February interview. "Then they [don't] file the next year because they think, 'If I file the next year, they'll fine me for the last year. But I'm owed a refund this year. But I'm just gonna stay underground.' And then they keep going on, and then finally the IRS finds them. And then it's a mess."

Olson should know — she served as the National Taxpayer Advocate for 19 years before stepping down in 2019.

In these cases, she says, "the worst thing that you can do is nothing at all." Reaching out to the agency to tell them you may owe taxes is always preferable than having the IRS find you.

Filing your taxes? Here are some tips 04:20

The tax agency acknowledged that people's finances may be tight because of the pandemic, and encouraged taxpayers to get in touch.

"The IRS understands that those affected by the coronavirus may not be able to pay their balances in full by July 15, but we have many payment options to help taxpayers," IRS Commissioner Chuck Rettig said in a statement. "These easy-to-use payment options are available on IRS.gov, and most can be done automatically without reaching out to an IRS representative."

The agency offers a guide for filing taxes if it's been a while, as well as a tool to find out if you're not required to file.

When the feds do your taxes

If you've gone a decade without filing a tax return and nothing has happened, that doesn't mean you're off the hook. If you have any income at all, the agency can use that to essentially file a tax return on your behalf.

Tax experts note that almost any non-cash income you get is reported to the IRS. That could be pay stubs from a job, a 1099 from your bank or brokerage, money from a gig or side hustle or earnings from selling on Amazon or eBay.

If you haven't filed a return, the IRS can use all that information to automatically create a tax return for you — something known as an Automated Substitute for Return, or ASFR. Some 380,000 taxpayers got this treatment in 2019, according to the National Taxpayer Advocate.

Unlike your personal accountant, the ASFR program will assume the worst for the taxpayer: It takes into account income, but ignores any deductions they may be entitled to.

"Let's say you're married with five children — that would really impact your taxable income. But the IRS doesn't know that," Olson said.

If you receive an ASFR, as with any tax notice, tax experts suggest reaching out to the IRS as soon as possible. After a certain period, if the IRS doesn't hear from you it will start collection proceedings — including such things as freezing your bank account or garnishing your wages.

The feds have no deadline

 There's one other reason not to delay. The IRS' timeline to go after non-filers is essentially unlimited. "[T]here's no statute of limitations for assessing and collecting the tax if no return has been filed," the agency says.

If you file a return, the IRS has three years to audit it and ask for additional tax. (In extreme circumstances the deadline extends to six years.)

The same goes for taxpayers, who have a three-year time limit to claim any refunds they may be owed. Many people, especially those eligible for tax credits, may not know to expect money from the government. As many as 1.4 million people who didn't file taxes for 2016 will soon run out of time to claim their money, the IRS said last week. They have until July 15 to ask for it — by filing a tax return.

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