Falling behind on your tax filings can happen for many reasons. Financial hardship, personal challenges, business difficulties, or simply feeling overwhelmed can cause taxpayers to delay filing their returns.
Unfortunately, ignoring unfiled tax returns rarely makes the problem go away. In fact, the longer returns remain unfiled, the more complicated and expensive the situation can become.
The good news is that there are often solutions available.
Does the IRS Know I Did Not File?
In many cases, yes.
The IRS receives copies of income information from employers, banks, investment firms, and other payers.
Examples include:
• W-2 forms
• 1099 forms
• Interest statements
• Dividend statements
Even if you do not file a return, the IRS may still know that income was earned.
What Is a Substitute for Return?
If you fail to file for an extended period, the IRS may prepare a return on your behalf. This is called a Substitute for Return (SFR).
The problem is that an SFR is usually prepared using only the income information available to the IRS.
The IRS generally does not include:
• Business expenses
• Tax credits
• Deductions
• Other tax benefits you may qualify for
As a result, the balance owed can be significantly higher than it should be.
Can Unfiled Returns Lead to Collections?
Yes.
Once the IRS assesses a tax balance, collection actions may begin.
Depending on the situation, taxpayers may face:
• Federal tax liens
• Bank levies
• Wage garnishments
• Increasing penalties and interest
The longer the issue remains unresolved, the more aggressive collection efforts may become.
How Many Years Do I Need to File?
Every case is different.
In many situations, the IRS requires taxpayers to become compliant by filing the most recent years needed to satisfy filing requirements.
The exact number of years depends on your circumstances and IRS records.
What If I Cannot Afford the Taxes Owed?
Many taxpayers avoid filing because they fear a large tax bill.
However, filing your returns is often the first step toward qualifying for relief programs such as:
• Installment Agreements
• Offer in Compromise
• Currently Not Collectible status
• Penalty Relief
The IRS generally expects taxpayers to be current with filing requirements before approving many resolution programs.
Why Filing Is Often Better Than Waiting
Even if you cannot pay immediately, filing your returns can:
• Stop certain failure-to-file penalties from growing
• Help establish compliance with the IRS
• Open the door to tax relief options
• Reduce the risk of substitute returns being filed
Many taxpayers discover that their actual liability is lower than they expected once proper deductions and credits are included.
Professional Guidance Can Help
Unfiled tax returns can feel overwhelming, especially if several years are involved.
A tax relief professional can review your situation, determine which years need to be filed, and help you develop a strategy for becoming compliant and resolving any tax debt.
The Six-Year Rule
In most cases, IRS policy is to require the last six years of returns to bring a taxpayer back into filing compliance. The IRS can ask for older years in some situations, but six years is the usual starting point.
Getting Your Income Records
You do not need to find every old W-2 or 1099 yourself. Your Wage and Income transcripts, available in your IRS Online Account, show the income employers, banks and clients reported for each year. Business owners and self-employed workers will also need bank statements and expense records to claim deductions.
Penalties for Filing Late
The failure-to-file penalty is 5% of the unpaid tax for each month a return is late, up to 25%, and returns more than 60 days late carry a minimum penalty. That is usually far more than the failure-to-pay penalty, which is why filing even without paying saves money. Penalty abatement through First-Time Abatement or reasonable cause may reduce these penalties once you are caught up.
Do Not Lose Your Refunds
If you were owed a refund for a year you did not file, you generally must claim it within three years of the original due date. After that, the money is lost, and it cannot even be applied to other years you owe.
Frequently Asked Questions
Can I e-file old tax returns?
The IRS generally accepts electronic filing for the current year and the two prior years. Older returns usually have to be mailed.
The IRS already filed a substitute return for me. Can I still file my own?
Yes. You can file your own original return with your real deductions and credits, and the IRS will generally reduce the assessment if your return is accurate.
Will I get in criminal trouble for not filing?
Criminal cases for failure to file are rare and generally involve willful conduct. Filing voluntarily before the IRS contacts you is the best way to reduce risk. If you have concerns, speak with a tax attorney before filing.
Get Help From Tax Relief Systems
If you have unfiled tax returns or owe more than $10,000 to the IRS, we can help you understand your options and move toward resolution.
Tax Relief Systems LLC
Phone: (877) 807-3133
Schedule a consultation:
https://taxreliefsystemsllc.com/schedule-a-consultation/