As tax time approaches, some tax payers hesitate to file the return if they cannot enclose a check for the full amount of the tax due. They seem to fear that partial payment, or no payment, will bring down unpleasant consequences, so they “hide” by not filing the return.
This is mistaken for several reasons. First, there are separate IRS penalties for failure to file and for failure to pay. Maybe you can’t pay, but you can certainly file, and avoid the failure to file penalty.
Second, filing the return starts several important time periods running: the three year period in which the IRS can assess more taxes for the year in question; and the 10 year statute of limitations on collection of taxes due.
Further, in bankruptcy, only taxes for years in which a return was filed on time (or within any extension granted) or, if not filed on time, filed at least two years before the bankruptcy case was filed, are dischargeable.
In my experience, I have seen no correlation between filing a return with less than full payment and collection action. Certainly you want to avoid having the IRS file a substitute return for you, as it makes the discharge of that tax debt far more uncertain.
Even if you can’t pay in full, gird your loins, overcome your fears, and file that return.
About Cathy Moran, California Bankruptcy Lawyer
I'm a certified specialist in bankruptcy law (California State Bar Board of Legal Specialization) practicing in the San Francisco Bay Area for more than 30 years. My proudest professional accomplishment is authorship of Bankruptcy in Brief at www.moranlaw.net, perhaps the web's most comprehensive web site on bankruptcy basics.
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