Penalty For Not Filing

Today TaxMama hears from Jim in Texas with this simple question.
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“Is there a penalty for not filing even if you have a refund coming?
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Hi Jim,

Well, since you’re in Texas, there are no state penalties.

As for IRS – yes.

If you have a refund coming and don’t file your tax return within three years – you will lose the refund.

THAT is the penalty.

Normally, penalties are based on the balance due. When there isn’t one, 0×25% is still 0.

However, when you don’t file, IRS may not know that you have a refund coming. If they prepare a substitute tax return for you it will be based on single, no dependents and no deductions.
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This can be especially rough if you sold stocks at a loss. IRS doesn’t know how much you paid for the stock. They only get the report that you sold the securities. You could get hit with a bill for thousands of dollars.
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In fact, I had one tearful client call me and tell that IRS had just hit her up for nearly $200,000 for an unfiled year, 10 years earlier. Her financial managers had sold a couple of hundred thousand dollars worth of stock, with the taxes, interest and penalties, over time, the IRS balance was close to 100% of the sales proceeds.
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In fact, she had sold the stock at a loss and ended up with substantial loss carryforwards – that were wasted. They would have eaten up her income in the subsequent years. But it was too late to get any refunds that far back.

So, not filing when you have a refund due may not generate any immediate penalties – you’re the only one getting hurt.

I thank you for donating your refunds to us all.

And no, there are no tax deductions for donations to IRS.

And remember, you can find answers to all kinds of questions about non filers and other tax issues, free. Where? Where else? At

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