If you do not file your back taxes within a certain period of time, IRS will either prepare a substitute return for you and charge you a late filing penalty, a late payment (if you owe) and possibly a 75 percent fraud penalty. Or, they may issue a summons for you to appear with your tax information, so that they can prepare a more accurate return.

For those who end up with a calculated refund, IRS, in the past, has issued a press release to notify the general public that millions of people are due a tax refund for a certain tax year and only have until April 15, of that year, to file a tax return and claim the refund.

Example: Earlier in 2007, IRS release a notice that over 1.6 million people were owed refunds amounting to billions of dollars for 2003. IRS went on to explain, in this same press release, that in order to receive the tax refund, a taxpayer had to file by April 15, 2007. Needless to say, millions of people did not meet the deadline and lost the refund.

This same process is repeating itself for the April 15, 2008 deadline and back tax refunds for tax year 2004. Year after year billions of dollars in refunds are not claimed.

How did IRS know that there was over 1.6 million people owed refunds? Substitute Returns.

Substitute returns are calculated based upon W-2s, 1099s and other income that is reported to IRS by your employer, clients and other sources.

Once IRS has completed a substitute return for a taxpayer; usually, the only way you can change the tax liability is file an actual tax return for that tax year.

We have found that Americans usually want to pay their fair share of taxes. People regardless of race, creed, color or religious background, understand that taxes enable us to live in a civilized society. Taxpayers understand this, yet, sometimes, they are too frighten to contact IRS. (After all, IRS has put some famous people in jail)

Not everybody can keep up with the year to year tax cycle. There may be illness or death in the family, a divorce, depression or other reasons why a taxpayer may experience a delay in filing taxes. Some people need more time, and IRS appears to be willing to give you more time. Just remember, penalties and interest compounds daily.

Cassandra Ingraham is a Tax Accountant and Instructor for Basic Tax Classes in the San Francisco Bay Area. During the balance of the year she can be found at http://www.taxeswilltravel.com providing Formal Introductions to Lenders for Accounts Receivable Funding (Factoring), training Factoring Specialist and new Tax preparers through her e-bay store

Source: www.isnare.com