Complying with Tax Laws

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Voluntary Compliance

The U.S. income tax system is built on the idea of voluntary compliance with tax laws. Taxpayers voluntarily comply by obtaining forms and instructions, providing complete and correct information, declaring all their income and filing their income tax returns on time.

Why should I file a tax return?

Individuals who receive income of a particular amount or higher are generally required by law to file a tax return. In addition, there are numerous practical reasons to file a tax return. Whether buying a home or financing a business, copies of filed returns must be submitted to the lending institution. Important programs like federal aid for higher education also require applicants to submit copies of tax returns to qualify for loans.

Who must file?

Whether you must file a tax return depends on a number of factors, including your filing status, age and the type and amount of income you receive.

Even if you do not have to file a return, there may be reasons why you would want to file. For example, you should file a return to get money back if federal income tax was withheld from your pay or you made estimated tax payments, or if you qualify for any of these refundable credits:

• Earned Income Tax Credit (EITC) – EITC is a federal income tax credit for eligible low-income workers. The credit reduces the amount of tax an individual owes, and the rest may be sent to you in the form of a tax refund.
• Additional Child Tax Credit – This credit may be available to you if you receive less than the full amount of the child tax credit and you have earned income that exceeds $3,000. The credit may give you a refund even if you do not owe any tax.
• Health Coverage Tax Credit – This credit is limited to certain individuals with qualified health coverage who are receiving Trade Adjustment Assistance, Alternative Trade Adjustment Assistance, Reemployment Trade Adjustment Assistance, or pension benefit payments from the Pension Benefit Guaranty Corporation. You may claim this credit on your return if you have not elected to have the IRS pay the Health Coverage Tax Credit portion of your health care premiums on a monthly basis.

Check the IRS website at www.irs.gov or consult the instructions for Forms 1040, 1040A or 1040EZ for specific details that may affect whether you need to file a tax return with the IRS this year.

When must I file?

April 15^th each year is the due date for filing your federal income tax return, if your tax year ends December 31^st. If you do not file your return by the due date, you may have to pay a failure-to-file penalty and interest.

You should file your return on time even if you do not have the money to pay the amount you owe. Doing so will avoid the failure to file penalty. The IRS has payment plans available for many people. You would still be subject to a failure-to-pay penalty and interest on the unpaid balance.

If you cannot file your return by the due date, you may use Form 4868 to request a 6 month extension of time to file. However, the tax shown on your return should be paid by the original due date of the return (even if you requested an extension of time to file) in order to avoid a failure to pay penalty and interest on the unpaid balance. Your paper return is filed on time if it is mailed in an envelope that is properly addressed, has enough postage, and is postmarked by the due date.

Does my return have to be on paper?

No, you do not have to file a return on paper; you may be able to file a paperless return using IRS e-file (electronic filing). It’s easy and the benefits include:

• Free File Options – Qualified taxpayers can prepare and e-file their return for free using commercially available online tax preparation software.
• Fast Refunds – You get your refund in half the time, even faster with Direct Deposit.
• Security – Your privacy and security are assured.
• Accuracy – IRS computers quickly and automatically check for errors or other missing information.

Should I keep records? 

You must keep records so that you can prepare a complete and accurate income tax return. The law does not generally require any special form of records. However, you should keep all receipts, canceled checks or other proof of payment, and any other records to support any deductions or credits you claim.

You must keep your records for as long as they may be needed for the administration of any provision of the Internal Revenue Code. Generally, you should keep records that support an item of income or a deduction appearing on your return for at least 3 years from the date you filed the return. If you omitted income or need to establish basis for property, you will need to keep records even longer. In addition, you generally have 3 years from the date you filed your return, or 2 years from the date you paid the tax, whichever is later, to file a claim for credit or refund and will need to have records to support the claim.

What happens if I don’t file a return?

If you are required to file but have not filed, the IRS may use information from its computer system to contact you and request that you file the appropriate return. If you owe money, by failing to timely file and pay, you will usually owe penalties and interest if you show a balance due on your return. Failure to respond to the request to file the return could result in the IRS filing a return on your behalf.

What if I haven’t filed in a while?

You should immediately contact a tax professional or the IRS and file the delinquent returns. The problem will become more difficult to solve the longer you wait. If you need assistance filing a delinquent return and your income is below a certain level, you may be eligible for assistance from a low income taxpayer clinic. For more information, see Publication 4134, Low Income Taxpayer Clinic List. This publication is available at www.irs.gov, by calling 1-800-TAX-FORM, or at your local IRS office.

Anyone unable to fully pay their liabilities immediately should not let that prevent them from filing a return, as payment options may be available. For more details, ask your tax professional or an IRS representative.

IRS Assistance

• Tax law and account questions: (800) 829-1040
• Tax forms and publications: (800) 829-3676
• IRS website: www.irs.gov