We Americans live in an age full of fantasy and conspiracy theories affecting everything including our tax system. Who to believe? What's Fake News - what isn't? People older than 50 remember when the IRS was tough as nails. Just saying the words "IRS" brought fear in folk's hearts and still does - but is this fear based in current reality?
We, on the front lines of tax representation, try to separate reality into 1. How the IRS actually conducts itself today vs. 2. How they operated in the past and 3. How they're supposed to operate - following the letter of the law.
In theory, not filing a tax return is against the law and could potentially be criminally prosecutable. BUT the IRS and the DOJ are very selective at pursuing non-filers - focusing on the most egregious violators but sometimes missing even these folks.
So with the IRS currently de-clawed, what should be your strongest motivation to file tax returns today?
1. Refunds - most wage earners who have taxes withheld usually over-pay and can get refunds of their last three years of tax returns.
2. Paying Into Social Security - self-employed Americans pay into this system entirely on their own. If you haven't filed taxes or paid taxes, then you have failed to fund this retirement income. By filing all the returns and then settling your IRS debt - you can potentially restore those Social Security credits at a substantial discount. But if you don't qualify for a settlement (you're not poor enough), a better strategy is to file and pay your most recent years (three years if possible).
3. The IRS might file returns for you without deductions. Although the IRS system completely broke down in 2013 to prepare substitute returns for non-filers, apparently it is back in gear. So...if you have been "1099'ed" - you might want to get ahead of the eight ball and file returns to avoid them filing them for you without deductions.
4. Buying a House - Most lenders want to see your last year's tax return or very often the last couple of years.
5. Student loans for your children (FAFSA) - the FAFSA folk usually want to see your last year's tax return to see if you meet their criteria.