If you have not filed a tax return in several years, filing as soon as possible is crucial to ensure compliance with the IRS. In this post, we at Seattle Legal Services, PLLC, outline the consequences of failure to file and discuss the steps you need to take to avoid penalties, additional fines, or even criminal prosecution. We also look at the financial implications of not filing tax returns.
People tend to be apprehensive about filing their tax returns for several reasons. Some believe it to be an invasion of privacy, while others don’t want to part with their hard-earned money. Preparing tax returns can also be tedious and stressful, leading some to procrastinate and live under stress for several years. If this describes you, you are not alone, and we are here to help.
You can address unfiled returns, get back into good standing with the IRS, and improve your financial stability. To get help now, contact us today, or keep reading to learn more about what happens when you don’t file a tax return.
IRS Filing Requirements
Generally, you only need to file a return for a tax year if your gross income exceeds the filing threshold for the given tax year. For example, the 2022 tax year filing threshold for a single filer under 65 is $12,950. If you are self-employed, you must file an annual tax return and make estimated quarterly payments if you have net (after-expenses) business earnings of at least $400.
Note that your filing requirements for a tax year depend on the threshold for that specific year. For example, when determining if you should have filed a return in 2014, you must use the 2014 filing thresholds.
There are also a few additional rare situations where people may need to file even if their earnings are under the threshold. For example, if you have tips that you need to pay Social Security tax on, you may need to file.
Even if you’re not required to file, you may want to file if either of the following is true:
- The IRS owes you a refund because you made estimated quarterly payments or your employer withheld excess income tax from your paycheck.
- You qualify for a refundable tax credit such as the child tax credit, earned income tax credit, or credit for federal tax on fuels.
Every year, taxpayers must file their returns before the IRS’s deadline, typically April 15th or the following business day if this date falls on a holiday or weekend. However, you can request a six-month filing extension. If extended, your return isn’t due until October, but your payment is still due in April.
How Long Can You Go Without Filing Taxes?
The length of time you can go without filing taxes depends on the situation. In terms of your personal finances, you may face effects right away, such as not being able to prove your income to lenders or public assistance programs. In terms of when the IRS will start noticing, it depends on how much money you earn and several other factors.
After failing to file a return for several years without facing any consequences, taxpayers often think the IRS does not know or care about them. However, the IRS tends to catch up with people who have unfiled returns, even if it takes them several years.
If you are employed, the IRS knows about you because your employer must report your wages. If you are self-employed, the IRS can track you down via interest income reports by your bank or nonemployee compensation reports by your clients.
Once the IRS determines that you received income but have not filed returns, the agency will send you a notice and tell you to file. The repercussions depend on how many years you have failed to file, whether the IRS owes you a refund and the size of your federal tax debt. You may face criminal prosecution if the IRS suspects you have willfully evaded tax.
No Statute of Limitations on Unfiled Returns
Once the IRS assesses a tax, the agency has ten years to collect the debt. However, no statute of limitations exists on unfiled tax returns.
In other words, if you have never filed taxes, the IRS can theoretically look back several decades and assess a tax for any period. In practice, the IRS only looks at the previous six years, but this can change if the agency suspects tax evasion or other serious issues.
Once you have filed your return, the IRS must assess any additional tax within three years. If the IRS owes you a refund, you have three years from the tax return’s due date to claim this money. Once this period expires, you can no longer claim this refund, and the IRS will not apply this credit to your account.
Consequences for Unfiled Returns by the Year
The consequences of not filing a tax return vary depending on how long it’s been since you last filed. The steps you can take to fix the situation also vary based on timing. Take a look at several different scenarios.
I Haven’t Filed This Year’s Return
If you know you will miss the return filing deadline, you can request a six-month extension, giving you until October 15th (or the next business day) to file. Otherwise, failure-to-file and failure-to-pay penalties will immediately start accruing on your account when you miss the deadline in April.
The failure-to-file penalty is 5% of your tax debt for every month your return is late, and the failure-to-pay penalty equals 0.5% of your tax liability. You must also pay interest on these penalties.
If you file late, you don’t owe the IRS any penalties if you qualify for a refund. However, you will only receive the funds after filing your return.
I Haven’t Filed Returns in 2 Years
If you have not filed a return in two years, you may have already started receiving notices from the IRS requesting that you file. The IRS can file a Substitute for Return (SFR) to assess tax against you and start the collection process if you owe federal tax.
This substitute return reports all the income on your W-2 or 1099. However, the IRS cannot calculate your credits or deductions, which means the agency will assess a higher tax liability than would have been the case if you had filed yourself. Depending on your liability, penalties, and interest may also have increased your bill significantly since you stopped filing.
At this point, you can still claim refunds. However, you must file returns for each tax year before the IRS will send your refund check.
I Haven’t Filed Returns in 3 Years
After failing to file for three years, you face growing penalties, interest, and the increasing risk that the IRS will file an SFR on your behalf. Once the IRS assesses a tax, you may be subject to an aggressive collection process. For example, the IRS can seize your assets or file a Notice of Federal Tax Lien against the property you own.
While you can still claim tax refunds, this right is about to expire. Filing all your outstanding returns is crucial to claim these funds and safeguard your credit rating, income, and assets.
I Haven’t Filed Returns in 5 Years
Once you reach the five-year mark of not filing any tax returns, you no longer have the right to claim refunds that originated three or more years ago. But you can claim refunds for more recent years.
Also, chances are the IRS already picked up on your late returns, filed an SFR, and assessed the tax against you. In that case, the IRS is collecting your tax debt and has likely already filed tax liens to secure the government’s legal claim against your property.
After the IRS issues a tax levy, the agency can collect your tax debt by seizing the funds in your bank account or garnishing your wages. Having unfiled returns can limit your tax resolution options, and you should seek professional assistance in resolving the matter.
I Haven’t Filed Returns in 10 Years
After a decade of not filing any returns, your tax situation requires immediate attention. In addition to losing refunds, wages, and assets, you may face increasing penalties and interest. If you owe a seriously delinquent tax debt, the State Department may also revoke your passport.
While it is true that the IRS has 10 years to collect your tax debt, this collection period only starts when you file a return or the IRS files an SFR for you. In other words, if you don’t file for 10 years, the IRS still has the right to assess and collect a tax liability. In contrast, if you filed a return 10 years ago and managed to ignore the debt for a decade, the IRS may no longer have the right to collect it.
While your situation may seem overwhelming, there are several steps you can take to resolve the matter once and for all. Unless you committed tax evasion or fraud, the IRS will help you become compliant and settle your debt.
What to Do If You Have Unfiled Returns
If you have not filed taxes in years, the first step is determining which years you must file. Using the IRS’s filing interview, you can determine if you must file a federal tax return for a given year.
You will need the following information for this interview:
- Your filing status
- Your gross income
- The federal income tax amount that your employer withheld from your paycheck
Once you know your filing requirements for each year, you must collect the appropriate tax forms. These forms are freely available on the IRS website, and you don’t have to pay to download them from third-party platforms.
Next, you must collect all your income information, including wages, business, retirement, and investment income. If you don’t have this information, contact the party who paid you or request it via Get Transcripts Online.
When completing your tax forms, you can calculate your tax liability before penalties and interest. After you have filed, the IRS will notify you of these amounts. Then, you can work with the agency to make payment arrangements.
Frequently Asked Questions
What should I do if I cannot afford my tax liability?
Once you are up to date on your tax filings, your next step will be to resolve your tax liability. If you have not filed for several years, you likely have a substantial tax balance, including accumulated penalties and interest.
The IRS has several tax debt relief programs to help you resolve your debt. These options include:
- An Offer in Compromise (OIC): Under this settlement agreement, you must pay a portion of your bill, and the IRS forgives the remainder of your debt. The IRS will typically only accept this offer if your assets and income are insufficient to cover your back tax balance.
- An Installment Agreement: If you have filed all your tax returns for the previous six years and are up to date on your current tax liabilities, you may qualify for an installment agreement. Under this arrangement, you must pay back taxes over time, making the liability more manageable.
- Partial Payment Installment Agreement (PPIA): If you can prove that you cannot pay your entire tax balance before the 10-year collection period expires, you may be eligible for a PPIA. With this option, the IRS agrees to a monthly payment towards your tax debt that you can afford. The IRS forgives the unpaid amount when the collection period ends.
- First-Time Penalty Abatement: After establishing an installment agreement with the IRS, you can request the removal of failure-to-file, failure-to-pay, and failure-to-deposit penalties from your tax balance.
- Currently Not Collectible: If a bank levy or wage garnishment will cause you undue financial hardship, your account may qualify for currently-not-collectible status. Upon granting this status, the IRS will pause collection activity, save for filing a Notice of Federal Tax Lien. If the collection period expires while your account is not collectible, you may pay less to the IRS.
Can failure to file land me in jail?
Failure to file your tax returns can result in a conviction of tax evasion or fraud and a prison sentence or fine. Suppose the IRS detects a pattern of willful tax evasion, underreporting income, and false statements over several years. In that case, you may become subject to an investigation. However, criminal prosecution is a worst-case scenario. If you find out the IRS is investigating you, consult a reputable tax attorney immediately.
Professional Tax Services – Get Into Compliance With the IRS
If you have been dodging the IRS during the past few years, immediate action is necessary to resolve your tax debt and maintain financial security.
At Seattle Legal Services, PLLC, we can help you regain good standing with the IRS and explore your tax relief options. While you may feel your situation is too complex to resolve, our legal team has the skills and experience to help you put this nightmare behind you. Don’t wait — contact us for help today.