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[samtha25]

Jurisdiction/Place:

Someone told me that if you do not owe any additional income tax, either you are not legally required to file income tax returns or the government can impose no penalty if you don't file. Anyone know if that's true?

[michael]

What do you mean "additional income tax" in your post? There are certain times when you may not have to file but don't be surprised if you get an inquiry as to why there is no filing for you with regard to a certain year.

[samtha25]

I meant that if you've paid all the income tax due through withholding and don't owe any additional payment.

[michael]

Originally posted by samtha25:
I meant that if you've paid all the income tax due through withholding and don't owe any additional payment.

My understanding is that you are correct since all the penalties are based upon owing some sum to the taxman. There are no civil or criminal penalties of which I am aware for failure to file if no tax was owed. A CPA would probably be most familiar with a question like this.

[rbrown100]

Michael's right: the penalties for late or non-filing are based on the amount due, so no amount due, no penalty. (The IRS once imposed a $100 minimum penalty on a return over 60 days late, but lost in Tax Court since the person owed no tax.) But Michael 's also right that if you don't file, for whatever reason, you'll likely get a letter from the IRS asking why.

Technically, whether you're "required" to file usually is based on only four factors: marital status, filing status, age, and gross income (see, e.g., pages 5-8 of IRS Publication 17.) Again, these rules have no teeth if you don't owe. However, for practical reasons I advise all my clients to file every year.

I'm not a CPA but I have an LL.M. in tax and a good amount of experience. The poster's point really merits a long discussion, but here are a few reactions:

1. When someone doesn't owe tax he or she is almost always owed a refund, and the only way to get it is to file (wait too long and you can forfeit the refund.)

2. You may owe nothing because of deductions the IRS won't see unless you put them on a return. I had a case where a nonfiler got a big bill when the IRS filled out a return for him that made every assumption against him. That changed when we filed using his actual records.

3. If you don't meet the IRS minimum filing requirements mentioned above, filing anyway gets that fact on record and starts the normal 3-year statute of limitations (there is none without filing.) There is also a special IRS program targeting habitual nonfilers, and it's good not to even start down that road.

4. Your return may be completely straightforward and bulletproof, but I'd still crunch the numbers with thorough software just to be sure not to miss other taxes payable on the 1040 (even the AMT is affecting more people each year) or other credits (besides your withheld taxes), which may increase your refund substantially.

5. You may also have to deal with state and maybe local taxes. A common pattern for New York City residents is to get a Federal refund but owe a smaller amount on the NY state/city return.

6. Some returns and tax records should be completed and kept so you don't overpay later. Capital loss carryovers, obviously, but also things like Form 8606 for IRA's, and the cost of improvements on property you may own a long time, such as your residence (there are great tax breaks when you eventually sell).

Other tax contribuors can surely add a lot to this discussion. I just think that people really should crunch the tax numbers every year, and once that's done they might as well file and avoid potential headaches.

[samtha25]

I wasn't advocating that people not file. I was just curious as to accuracy of what I was told. It's still not clear to me whether people are legally required to file if they owe no tax, although I take it that there is a legal requirement to file, but that the requirement has no enforcement mechanism if you owe no tax.

[michael]

I'm not sure but I think that rbrown100's excellent, detailed post was stating (and I only have 4 tax law courses backing me from business and law schools!) is that whether you have to file is governed by those 4 factors. You may legally not be required to file but you may be required to prove it when the IRS comes after you. When that happens it usually is more trouble than having filed taxes stating that you didn't owe!!!

[mfleshman]

Read my thread and see what can happen. I was under the same belief and 8 years later was assessed the full taxable amount without any means to contest it. At least keep your W-2s FOREVER.

[NYClex]

as others here said before, you have to file a return if you have to pay tax. The fact that the tax was withheld doesn't mean that you don't have to file. You have to pay tax and it was paid through withholding, but you still need to file. And very often it means that you will get a refund.

Only a few people do not need to file, that is those who don't owe any tax at all, since they did not work and therefore had no income, for example.

Go to www.irs.gov and read the instructions to form 1040: "when to file".