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What happens when a tax filing extension is missed?

It is relatively easy to obtain a six-month extension to file a tax return. This year the deadline for extension filers was October 17.

Sometimes the issues that prevented you from filing prior to the April deadline are ongoing. How can you come in from the cold and address the unfiled tax returns? As part of its enforcement strategy, the IRS will usually reach out with a delinquency notice. But what if you never received a notice? Don't make a mistake and assume the problem has gone away.

Audits of the IRS

It's not only the IRS initiating audits; its oversight agency - the Treasurer Inspector General for Tax Administration (TIGTA) - frequently scrutinizes IRS policies and practices as well. A recent TIGTA audit reviewed automated processes that should trigger notices to non filers who miss the filing extension. In the 2012 and 2013 tax years, a programming glitch failed to identify and address 1.9 million of these situations.

Affected taxpayers owed an estimated $7.4 billion in back taxes, penalties and interest as of May 2016. Because this process is operated on a yearly basis, non filers in either of the above tax years may never be notified of their outstanding obligations.

In general, the IRS generally has 10 years to collect past due tax debt, so it still has time.

A new process: Delays & more delay

The old process was discontinued by IRS management. In early 2014, a new strategy was announced to address non filers. The goal was to improve compliance. But the new strategy didn't include specific actions or metrics to determine whether response rates increased.

Implementation of new initiatives moves slowly. Apparently, the nonfiler initiative had yet to be launched when the review occurred in July 2016.

Needless to say TIGTA was not impressed with how the IRS has been handling expired extensions. It recommended changes to information controls and tools along with procedures in the program. Non filing has been deemed a significant compliance risk.

With the addition of outside collection firms in the spring, those who have not filed their past tax returns may soon receive greater attention.

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