The United States tax system is a voluntary tax compliance system – this means that you need to independently prepare and file and pay your taxes. You are not compelled to file anything.
Because of the voluntary nature of this system, the IRS likes to mix in a little fear to make sure we comply. This fear of the IRS can make certain people act in a bizarre fashion
I had one client that was so afraid of the IRS that whenever he received a letter from the IRS he would quit his job and move. In fact, whenever he would come to see me he would bring stacks of unopened IRS letters. This man quit his job and moved a total of three separate times over the course of twelve years – all as a response to these unopened IRS letters!
After I opened these stacks of letters, I learned that the IRS wanted him to file his unfiled tax returns – they were not seeking any money. My client was a W-2 employee, and he had been withholding at the correct level. Because of this, once we got his tax returns filed my client ended up receiving large refunds.
Unfortunately, this story doesn’t have a completely happy ending. If you do not file a tax return within three years of the due date (plus any extensions), the law acts to bar any refund to which you’re entitled. My client lost a significant amount of money because he filed his tax returns so late – the refunds were barred by the statute of limitation.
In any case, our taxpayer is now living free of fear of the IRS. No more quitting his job and moving!