Don’t let unfiled returns create a snowball effect that lands you in a tense financial and legal spot. Once you know how to file unfiled tax returns, you’re able to walk away from penalties that could potentially chase you for years. What’s more, the upside to setting things right with the IRS is that you may actually have a nice refund waiting for you on the other side.
Fearing that you cannot pay what you owe in taxes is not a reason to avoid filing. You can only access IRS debt relief and forgiveness if you’ve filed all current taxes owed. Before covering how to resolve unfiled tax returns, it’s important to know what’s really happening when the IRS notifies you that you have unfiled taxes.
You generate tax problems when you don’t file your income tax returns with the IRS/State. After ignoring many notices to file a tax return, the IRS/state will ultimately prepare one for you, called a Substitute for Return (SFR).
The IRS/State uses income that has been reported to them, such as wages, interest income, subcontractor payments, sale of property, etc., and then assumes you are single, have no dependents, and uses the standard deduction.
Now you have a tax bill or a larger tax bill than expected, even though you didn’t actually file a tax return. You also have created other problems. You can’t get an installment agreement without filing the missing returns, even the SFR’s. You can’t submit an Offer in Compromise if there are missing returns. Bankruptcy won’t clear off old years if those returns were not filed by you. And the IRS/State will continue to try to collect on the SFR billings.
Important Things to Know About Unfiled Tax Returns
An unfiled tax return is a tax return that you haven’t filed even though you were required to do so by law. It really is in your best interest to file any outstanding tax returns. The big benefit of filing on time is that you will be able to access all of the credits for exemptions and deductions that are owed to you. The IRS probably won’t give you the credits you are owed if it files a substitute return on your behalf. In fact, the IRS will almost certainly file in a manner that benefits the government instead of providing you with the best outcome. Here’s how the process works once the IRS steps in to file your return for you:
- You will receive an IRS Notice of Deficiency proposing a tax assessment.
- You will be provided with a 90-day window for filing your past-due return.
- You can also use your 90-day window to file a petition in tax court.
- Failing to take either action gives the IRS permission to proceed with its proposed assessment.
Why let the IRS take charge? A far better option is to work with a tax professional to get any outstanding returns filed.
If you’re a self-employed person your Social Security benefits could be dinged if you fail to file a tax return. Any self-employment income you earn during periods where you fail to file will not be reported to the Social Security Administration. Failing to file is like throwing away future retirement and disability benefits that you’ve earned through your hard work.
There are also some immediate financial repercussions to not filing a tax return. Lenders, brokers, and financial institutions will be alerted of your non-filing status when you apply for a mortgage, try to obtain a loan, or seek federal aid for tuition. What’s more, the IRS can add pricey penalties if you fail to file a return. There is even the possibility of facing things like tax liens, wage garnishments, and criminal prosecution if things go too far.
Can You Get a Tax Refund for All Unfiled Tax Returns?
You can receive a tax refund when you file a previously unfiled return. However, you must file your return within three years of its due date to qualify for any refunds that are owed to you. This same rule applies to tax credits that are owed to you. The good news is that there’s still time to reap benefits and get refunds if you’re within that three-year window.
There is a little bit of a grey area when it comes to the IRS statute of limitations on unfiled tax returns. Technically, the IRS can go back to any year that you didn’t file and assign penalties. However, the IRS very rarely goes back more than six years when investigating tax deficiencies. That doesn’t mean you won’t be stuck with a pile of penalties before that six-year window is up. A failure-to-pay penalty representing 5 percent of your unpaid taxes for each month your return remains unfiled can be devastating. The bottom line is to be prepared for the IRS to ask you to file returns for any delinquent years within the past six years as you try to get current.
Are Unfiled Tax Returns Illegal?
Failing to file a required tax return is a crime. Unfortunately, people who fail to file taxes can face up to a year in jail. It doesn’t need to come to that if you seek out back taxes help right away to clean the slate using the options that are available from the IRS.
How to Fix Unfiled Tax Returns
It is important to file any outstanding returns as soon as possible. You may be reluctant to file because you fear your next tax bill. However, the IRS could potentially bring levies and seizures against you if it files your taxes for you. How do you fix unfiled returns? The simple answer is to file as soon as possible!
Yes, the IRS provides a pathway to filing even if you’ve neglected your taxes for a few years. What’s more, unfiled tax returns IRS representatives filed as substitute returns for you will typically be adjusted to give you the deductions and credits you’ve claimed on your updated return. If you’re wondering how to resolve unfiled tax returns, you’ll need to follow the specific instructions given by the IRS for your case. Here’s what the process will generally look like:
- You’ll send in your completed tax return.
- You’ll send an accompanying letter consenting to the assessment and collection form.
- You’ll send an additional letter detailing why you failed to file.
The IRS manager assigned to your case actually has a little bit of discretion when it comes to things like the unfiled tax returns statute of limitations. IRS managers typically look at things like the degree of flagrancy involved, any history of noncompliance, the possibility of income being generated from illegal sources, and the amount of taxes due. The process is probably less painful than you think if you don’t have any special circumstances involved other than simply failing to file.
Having your taxes prepared professionally each year is the best way to avoid future tax nightmares. Our tax professionals can assist you with sorting through your unfiled taxes, determining how far back you need to file, ensuring that your filings are accurate, and requesting any penalty relief that may be available to you.
Do You Need Unfiled Tax Returns Help?
Unfiled taxes never go away on their own. The good news is that you still have an opportunity to get on the right page with the IRS. Tax Group Center is an industry-leading firm with more than 30 years of experience, and we’re here to walk you through every step of filing your outstanding returns and getting any benefits or relief options that are available for your specific circumstances. We’re the top choice for all tax needs and tax problems, and our team of licensed tax attorneys, CPAs, enrolled agents, and tax agents is committed to helping you.
How Tax Group Center Can Help …
It is in your best interest to have your tax returns — both personal and business — prepared and filed on time, each and every year. Even if you are currently behind on filing tax returns from previous years, the Tax Group Center can help. Sooner or later, the IRS will discover your filing delinquency. The penalties and interest the IRS will assess due to unfiled tax returns and the corresponding unpaid taxes will quickly turn your tax situation into a nightmare. Left unresolved, the IRS will take very aggressive measures to collect any unpaid taxes, including garnishing your wages or issuing levies against your bank account or Social Security benefits.
Don’t let this happen to you! Call the Tax Group Center today. Let the CTEC Certified Tax Consultants and tax professionals at Tax Group Center help you get those unfiled tax returns properly filed and then work with you to identify the best way to help resolve your IRS tax problems.
