Unfiled Tax Returns:
The Ultimate Guide

Having unfiled tax returns means that you have taxes yet to be filed with the IRS. People find themselves in this situation for many reasons. This might include situations like having personal finance issues related to accidents or health problems, the tax complexities of owning of a business, or even that you simply just don?t have the cash to pay your taxes on hand and therefore chose not to file. Whatever the reason, you’re not alone. In fact, it’s estimated that over 7 million Americans fail to file every year.

If you’ve found yourself with unfiled tax returns, this guide is intended to help you clarify your situation, understand what actions the IRS could take against you, and answer your questions on how outstanding returns can affect your daily life.

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Here are the specific topics this guide will cover.

  • What is the Statute of Limitations: How far back can the IRS go?
  • Unfiled Tax Return Penalties: What can the IRS do?
  • What Happens if I Was Expecting a Refund on Delinquent Taxes?
  • How to File Taxes If I Already Have Unfiled Returns

What is the Statute of Limitations? How far back can the IRS go?

When it comes to the IRS, there is a check and balance in place to protect citizens from legal action after specific periods of time. This is called a statute of limitation. The statute of limitations with the IRS is, in general, 3 years to audit your returns and 10 years to collect the taxes. Let’s break this down.

What is the 3-year IRS statute of limitations?

The 3 years the IRS has to audit your returns applies to taxes that have been filed. If you omit more than 25% of your income or the IRS sees probable cause of tax fraud, though, the IRS will then be able to go back and audit taxes for up to 6 years. So in this sense, the IRS really has 6 years to conduct an audit. It’s for that reason that you need to keep tax records for up to 6 years.

There is also a 3-year statute of limitations for claiming a tax refund. This means that if you did not file your taxes when a refund would have been owed to you, you have 3 years to claim it by filing. If the 3 years pass without you claiming your refund, the IRS doesn’t have to legally pay it out to you and you forfeit that money.

What is the 10-year IRS statute of limitations?

The 10-year statute of limitations applies to taxes that you owe. The IRS has 10 years from the time of assessment of the tax on you to take any legal action within their means to collect from you. (We’ll get into those legal actions like liens and garnishments shortly.) If the IRS knows about your outstanding tax debt, the chances of them not taking collective action within 10 years are pretty slim. Always assume that the IRS knows about your debt, and always assume that the IRS will come for the money eventually.

The other important thing to note about IRS statutes of limitations is that if you did not file a tax return, the clock never starts. In other words, if you don’t file your taxes, the IRS can take legal action against you at any point. Tax evasion, or willfully not filing or paying tax, has serious consequences and can even be criminal.


Unfiled Tax Return Penalties: What can the IRS do?

The IRS has many legal courses of action to take in order to collect outstanding tax debts. They have means to forcefully collect what’s owed to them as well as the ability to enforce non-financial penalties that may impede your daily life.

Substitute Return

You might be wondering how the IRS can take collection action if you haven’t even filed a return. How do you they know what you owe? Well, the IRS can actually file a return for you called a substitute return. It will show only very basic income information and simple deductions. This substitute return will not reflect particular situations such as selling a house, business deductions, or that you’ve had any change in circumstances from the last filed year. The result is that the tax may be overstated, showing that you owe more than you really do.

You will have 90 days to dispute the amount of tax in U.S. Tax Court if you receive a substitute return notice from the IRS. Failing to do so will result in the IRS formally assessing the tax and taking collection action against you.

If you have unfiled tax returns and are feeling overwhelmed, contact us today for a free consult! We can help.

Financial Penalties of Unfiled Tax Returns

The IRS has the authority to take what’s owed to them. In every one of these situations, the IRS must first notify you of your debt and of their intent to collect. Once you receive an official notice from the IRS, you’ll be given time to contact the IRS or file a petition with the United States Tax Court to work out a payment arrangement (such as an installment plan or offer in compromise) or dispute the amount due. If this time period passes without action from you, the IRS can enforce collective action of outstanding tax debt in some of the following ways.

A Tax Lien

A lien is a legal right for a person or entity to take possession of property belonging to another person until a debt owed by that person is paid. A tax lien is when the IRS takes possession of property owned by a person with outstanding tax debt totaling $10,000 or more. If the IRS files a lien on your name, they would get the profit on the sale of property you own. This makes it so the IRS will get paid before you do. Additionally, liens may also prevent you from finishing financial transactions, such as home refinancing or getting a bank loan.

A Bank Levy

To simplify, a bank levy is when the IRS takes over your bank account(s). The IRS works with your bank to be able to draw funds directly from your account. If you have multiple accounts in the same bank, a levy would apply to all of them. Once the IRS has given your bank a Notice of Levy, the bank must hold your money for 21 days before releasing the money to the IRS. You will not have access to your money during this time, so any checks or debits drawn from this account would bounce


Another type of levy is wage garnishment. Wage garnishment is when the IRS takes a portion of money from each paycheck you receive. The IRS cannot take your entire paycheck. However, the amount that they can take is determined by them based off state regulations, your filing status, pay periods, and the number of dependents you claim. Wage garnishment could leave you with very little left over in each check.

Interest and Fees

If you did not file your taxes and subsequently owe the IRS, two separate fees may be applied: one for not filing and one for not paying on time. The failure-to-file penalty is 5% of your balance due for every month left unpaid. This fee can go up to a total of 25% of your unpaid taxes. If you file your tax return more than 60 days late, the minimum failure-to-file penalty will be 100% of your unpaid taxes or $205, whichever is smaller. The failure-to-pay penalty is 0.5% of your balance due each month. This penalty will not be more than 25% of your unpaid taxes. If you haven?t filed and haven’t paid, the 25% cap applies to both penalties together. Of course, on top of the amounts due, whether it’s taxes or penalties, there will be interest added to all amounts not paid.

Wondering if your tax debt can be forgiven? Read about it here.

Nonfinancial Penalties of Unfiled Tax Returns

In addition to the financial hooks the IRS can put out if you have unfiled tax returns, other consequences may occur. Some, like retirement benefits, aren’t even directly caused by IRS action.

International Travel and Passport Issuance

If you owe more than $51,000 in tax debt, including interest and penalties, the IRS has the right to revoke your passport. In this circumstance, a tax lien would already have been filed and a levy issued. However, the IRS cannot do this if you are in bankruptcy, in an installment payment arrangement, being considered for an offer in compromise, or involved in a few other types of communication with the IRS. You will be notified by the IRS of its intent to have the U.S. State Department revoke your passport. If the State Department chooses to take action, you will have 90 days to fix the issue with the IRS.

Jail Time

Generally speaking, the IRS won’t try to put you in jail unless you’ve committed fraud or felony tax evasion. The biggest differentiator here is your intent. Did you knowingly and willfully commit a crime? Intentionally falsify your taxable income or withholdings? If not, the IRS will work with you to settle your tax matter without criminal charges. Read more on the subject on IRS and jail time here.

License Revocation

If you have a professional license, the IRS can revoke it until you file your returns and pay the tax owed. And yes, the IRS can revoke or suspend your driver’s license. Some types of licenses the IRS may revoke or deny renewal of are teaching licenses, medical and nursing, legal, cosmetology, accounting, and even hunting or fishing licenses. The IRS will send what’s called a Certificate of Non-Compliance to the licensing authority in question. That authority then has no choice but to comply with the IRS and suspend or revoke your license. You will be notified of the license revocation by that authority.

Retirement Benefits

This penalty isn’t directly enforced by the IRS, however, if you have unfiled tax returns, your retirement benefits could be affected. By not reporting your social security wages on your tax return, the Social Security Administration will not have the information it needs to be able to properly calculate the amount available to you to pay at retirement or in the event of disability. When it comes time to retire, you may be out a substantial amount of money depending on how delinquent you were in filing your returns.

Inability to Get a Loan

Again, this consequence isn’t directly enforced by the IRS, but having unfiled tax returns could prevent you from getting lending or government benefits. Often times banks or agencies require copies of your prior tax return filings. You may be denied if you don’t have anything to show. Also, if a tax lien is in place, this will appear on a credit search and a lender is likely to deny you a loan due to the outstanding tax debt.

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What happens if I was expecting a refund on unfiled taxes?

As mentioned above, the statute of limitations when you are owed a refund is 3 years. That means if you didn’t file a tax return 4 years ago but you were anticipating a refund, the refund is forfeited. After 3 years, the IRS cannot pay the refund to you.

Additionally, if you missed filing a tax return one year but are owed a refund in a subsequent year, the IRS can withhold that refund if it believes you will owe taxes in another year until you become up to date with your filing. Having one year of unfiled years can mean you never receive a refund.

Need help with unfiled tax returns? Contact us!


How to File Taxes If I Already Have Unfiled Returns

Now that we’ve discussed all the consequences and implications of not filing your taxes, you may be wondering how to proceed from here. How do you file taxes if you have previously unfiled returns? Here are the steps we recommend taking to file and get current on your taxes.

  1. Contact a Tax Professional.

Preparing your taxes can be really hard, especially if your situation is complicated. Tax preparers usually have software that will help you file those old tax returns all at once. A good preparer will walk you through the information you need to gather and help work out any complications to create a straight path forward.

  1. Gather Information.

You will need your past W-2s, 1099s, and all other financial information necessary to file your returns. Receipts to support your deductions will be necessary if you own a business as well. In addition, you will need to have documentation showing the details of any property sales. As mentioned above, a tax professional can help you sort out what’s needed to file accurately.

  1. Request a Return Transcript.

The IRS tracks tax information supplied by your employer or other income sources through your social security number. This is called a Return Transcript. In addition, your balances due and any payments you’ve made to the IRS are tracked on your Account Transcript. You can request your transcripts by calling the IRS, requesting online at www.irs.gov, or mailing in your request. You’ll need these transcripts if you don’t have records of your tax history at the ready. Even if you do have records, it’s probably a good idea to request transcripts to see any discrepancies between you and the IRS. They’ll be helpful in almost every circumstance.

  1. Where to File Your Taxes.

File your taxes the same way you would in a current tax year. The actual process for filing a previous year’s taxes doesn’t change. However, if the IRS has filed a substitute return, as described above, you will need to send the return to the address on that notice. Also, note that the IRS might give you different address to submit your return to if you’re currently working with them on payment arrangements for other tax years.

  1. Penalties and Interest.

Once you file your return and the IRS processes your return, it will send you a bill if the return shows a balance due. It will add interest and penalties to the tax owed. You do not need to calculate this on your own. Once you receive the notice, you should get in contact with the IRS as soon as possible to avoid penalties and interest from adding up. Too often we see a large bill that started out as a small amount of tax due, but the interest and penalties made the total amount due seem insurmountable.

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Regardless of why you haven’t filed your tax returns, the IRS can (and almost certainly will) take action against you to get what’s owed to them. The consequences, both financial and nonfinancial, will continue to pile up the longer you go without having paid. Interest and fees will continue to accumulate and your ability to earn income or retire may be affected. The sooner you file your back taxes and begin to work with the IRS the better. Addressing the problem is the only way out.

It is entirely possible to work with the IRS on your own, but you might want to consider working with a tax debt professional. They can be an intermediary between you and the IRS, helping to interpret the legal jargon and ultimately helping you get the best outcome possible.

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Revermann Law
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Waite Park, MN 56387

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All content on this website is intended to be informational only and does not create an attorney-client relationship and does not intend to constitute legal advice.