Missing the tax filing deadline still leaves options

Another April 15 has come and gone, and millions of taxpayers still haven’t filed their tax returns.

About 10.3 million Americans were expected to file for automatic six-month extensions this year, up from 10 million last year, according to Internal Revenue Service estimates earlier this year. But some people didn’t even bother getting an extension.

Whatever the explanation, the costs of not filing this year are considerably higher for most Americans than last year. This year, you have to file in order to be eligible for an economic-stimulus payment. The Treasury Department will begin sending those payments to more than 130 million households early next month.

What to do? And what should you do if you did file on time but suddenly realized you forgot to include something important, such as a tax-deductible donation to your favorite charity? Here is what lawyers, accountants and other tax advisers say about a few post-April 15 issues that some people are wondering about.

Going AWOL. IRS researchers have estimated the Treasury loses about $25 billion a year from those who should be filing federal individual income-tax returns but haven’t. Ignoring the tax collector isn’t smart. The IRS has the authority to impose a wide range of civil and criminal sanctions. If you haven’t filed for last year and owe money to Uncle Sam, you may get hit not only with interest but also penalties.

Naturally, if you haven’t filed and the government owes you money, there’s no late-filing penalty. But that economic-stimulus payment won’t arrive until you do – and you have to file by Oct. 15 in order to be eligible for a payment this year. Millions of retirees, disabled veterans and low-income workers who usually are exempt from having to file must do so this year in order to get their Treasury payments.

If you’re eligible, the Treasury will send as much as $600 for an individual, or as much as $1,200 for married couples filing jointly, and parents will get an additional $300 for each eligible child under 17. The amounts begin to phase out for incomes above $75,000 for individuals and $150,000 for a married couple filing jointly. Many people eligible for refunds may think they have unlimited amounts of time to file since they’re simply getting back their own money. Wrong. Typically, you have to file for a refund within three years from the date that return was due, including extensions. If you don’t, wave goodbye to your refund. It belongs to the U.S. Treasury.

Last month, the IRS said about 1.3 million people were in danger of losing a total of about $1.2 billion in refunds because they hadn’t filed federal income-tax returns for 2004. In order to collect, those people had to file with an IRS office no later than Monday.

Crime and Punishment. The problem can get far more serious for those who haven’t filed for several years and who owe large amounts of money. Those people may get hit with criminal charges. A case in point is Wesley Snipes, the actor, who is awaiting sentencing after having been convicted earlier this year on three misdemeanor counts of failing to file. He faces up to three years in prison. This week, the government urged the court to sentence him to the full 36 months plus a fine of at least $5 million.

Suppose you haven’t filed for years, owe money and are eager to come clean. Deciding precisely how to come in from the cold can depend on such factors as how long you haven’t filed, how much you owe, why you didn’t file, whether all your income is from legal sources and whether you’ve already received nasty letters from the IRS.

Usually, it’s wise for nonfilers to file and pay as soon as possible before the IRS discovers the problem or suspects them. Experts say people who fear possible criminal charges should consider hiring a lawyer to contact the IRS in an effort to persuade the agency to be lenient on penalties and agree not to prosecute – in return for the client agreeing to file and pay, or arrange payment.

When You’re Broke. If you owe more than you can afford to pay right now, beware of the ostrich approach – sticking your head in the sand and pretending your tax bill doesn’t exist. Instead, consider filing and arranging to pay through an installment agreement. If you owe more than you can ever reasonably hope to pay, consider asking the IRS to accept less than the full amount. The IRS has an “offer-in-compromise” program for taxpayers who can prove they’re in deep financial stress. But don’t get your hopes up. The process typically is very long and cumbersome – and it’s usually exceptionally difficult to get the IRS to say yes.

Making Amends. Suppose you filed your return for 2007 and just discovered something you forgot to include. For example, one reader who changed jobs last year just realized she had paid too much in Social Security taxes. (The maximum amount of wages subject to the tax for 2007 was $97,500. The maximum tax that should have been withheld was $6,045.) To fix errors or omissions, file what’s known as an amended return on Form 1040X, available on irs.gov.