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What Happens if You Haven't Filed Taxes for Years?

Senior couple discusses failure to file taxes.

Whether it was due to an honest misunderstanding of the filing requirements or a willful failure to comply with the law, the consequences of not filing your federal income tax returns can be expensive. Even if it's been years since you skipped filing a return, the Internal Revenue Service can still demand payment because there are no time limits for collecting from someone who never filed. In most cases, the IRS does not pursue taxpayers with unfiled returns more than six years old.

When someone hasn't filed their federal income returns for years, their problems could be much worse. That's because the IRS will impose penalties that are a percentage of the taxes that you owe. The more years you don't file, the more tax debt you'll owe, which means a larger penalty. In addition, you will owe interest on any unpaid taxes, which can add up.

No Statute of Limitations for Unfiled Returns

If you have old, unfiled tax returns, it may be tempting to believe that the IRS or state tax agency has forgotten about you. While the IRS usually does not pursue taxpayers who have unfiled returns over six years old, it still has the discretion to take action related to much older returns. For example, the IRS may go back further than six years if the taxpayer has a long history of tax payment noncompliance or income from illegal sources.

There is generally a 10-year time limit on collecting taxes, penalties, and interest for each year you were not filing taxes. If you don't file taxes, the period of limitations on collections does not begin to run until the IRS makes a deficiency assessment.

State tax agencies have their own rules, and many have even more time to collect. For example, California can collect state taxes up to 20 years after the assessment date.

What if You Don't Owe Money?

Not everyone who doesn't file a return needs to fear discovery by the IRS. For example, people who earn under a specified amount aren't required to file each year and won't be punished for not filing. The filing threshold is adjusted each year for inflation, but for 2023, it was $13,850 for single taxpayers under 65 and $27,700 for married couples under 65 who filed jointly.

Another common situation where you won't be punished for failing to file a return is when you are due an IRS tax refund. Employees who have taxes withheld from their paycheck each pay period often get a tax refund if they withhold more than they owe. Taxpayers in this situation won't be assessed a Failure to File penalty. However, if you are owed a refund and have not filed, you only have three years to claim the refund or it'll be lost forever.

What Is the Failure To File Penalty?

Any taxpayer who has not filed their federal income tax return by the due date — for most years, it's April 15 — is subject to the Failure to File penalty. If you file after that date, you will be subject to a late filing penalty. In addition, if you owed taxes as of the due date, you will be assessed a separate failure to pay penalty or a late payment penalty, depending on whether you don't pay or pay late.

The Failure to File penalty is 5% of your unpaid taxes for any month, or part of a month, that a tax return was late. The total penalty can't exceed 25% of your unpaid tax bill. The failure to pay penalty is only 0.5% of your unpaid tax bill for each month, not to exceed 25%. If both the Failure to File and failure to pay penalties apply to the same month, the failure to file penalty drops to 4.5%. As a result, when both penalties are applied, you will still owe 5% per month, up to a total of 25%.

If you owe money to the IRS, you will also owe interest to the IRS that is assessed for each month your taxes are unpaid. Interest is also charged on penalties and additions to tax. The interest rate is the federal short-term rate plus three percentage points, which was 8% in 2024.

Can Failure To File be a Crime?

While the IRS can impose penalties for Failure to File or failure to pay tax, they may also be crimes that could result in criminal charges of jail time. The IRS recognizes several crimes of tax law related to evading the assessment and payment of taxes. Internal Revenue codes are designed to punish those trying to take advantage of the tax system.

Any willful attempt to evade taxes can be considered tax evasion, which is punishable by up to five years in prison and $250,000 in fines. Unlike situations where it is just trying to collect taxes owed, the government only has a limited time to file charges against you if you don't file. The statute of limitations for tax evasion or related charges is generally six years from the date the unfiled return was due.

For most taxpayers who don't file, the IRS must show you were not filing taxes intentionally to prove tax evasion.

IRS May File a Substitute Return

Just because you didn't file your return doesn't mean the IRS won't file one for you. The IRS may file a substitute for return (SFR) on your behalf. Don't think of this as a complementary tax filing service. The substituted return may leave off a tax credit or deductions that belong to you.

Once an SFR is filed, you will be sent a notice giving you the option of accepting the tax liability as filed in this alternate return. If you don't respond, the IRS will issue a notice of deficiency. At that point, the tax is considered owed by you and the IRS can begin the collection process. To encourage payment, a tax levy can be placed on your wages or bank accounts. A federal tax lien may also be placed against your home and real estate.

If an SFR was filed, you don't have to accept the outcome. You can go back and refile those tax years and include any available deductions. You may be able to decrease the tax due and reduce any interest and penalties.

File Your Missing Returns

You may want to file your old returns before an IRS demand is made. There's no time limit for submitting a previously unfiled return. If you'd like to claim a refund, you have up to three years from the due date of the return. It may be a good idea to speak with an experienced tax attorney or CPA before amending or filing old returns. 

Here are some benefits of getting missing tax returns filed:

  • Protect your Social Security benefits: If you're self-employed and don't file, you won't receive credits toward Social Security retirement or disability benefits.
  • Avoid issues obtaining loans: Loans may be denied or delayed if you cannot prove income by providing tax returns or reportable income.
  • Not having to worry about your unfiled taxes: Once your tax issue is resolved, it will free up your time for more enjoyable pursuits.

Negotiate Your Tax Bill

If your tax assessment is too high, you may be able to negotiate a better deal. Penalties may represent 25% of what you owe to the IRS, so getting these removed can make a real difference. File Form 843 to request an abatement of taxes, interest, penalties, fees, and additions to tax.

You might consider a Partial Payment Installment Agreement (PPIA) where the IRS agrees to accept less than the total you owe. The IRS will only agree to a PPIA if it's clear the monthly payments you can make will not cover your total taxes due for many years.

Another option to reduce your total tax liability is an offer in compromise (OIC). If the IRS accepts an OIC, it serves as an agreement between a taxpayer and the IRS to settle a taxpayer's tax liabilities for less than the full amount owed. If you can pay the full amount of your liability through an installment agreement or other means, you won't qualify for an OIC.

Still Have Questions? A Tax Lawyer Can Help

If you have not filed tax returns for years, the interest and penalties you may owe on any back taxes you owe can be substantial. If it's likely that you owe money, it's a good idea to talk with an experienced tax attorney before filing your past-due returns. 

An attorney can negotiate with the IRS or state tax agency and set up a payment installment plan you can reasonably meet. It may also be possible to reduce the fines and fees assessed against you.

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