Unfiled Tax Returns Statute of Limitations

Stopwatch and gavel in IRS tax lawyer office

If you’ve missed several years of filing your taxes, you may be wondering how far back the IRS can go for unfiled taxes. Well, the bad news is that the IRS can technically go back an unlimited amount of time if you haven’t filed your tax returns. The good news, however, is that in practice the IRS usually only looks back six years.

Regardless of what’s happening with your tax situation, it is possible to get back into good standing with the IRS, and even if you owe a lot when you do end up filing your back taxes, it is possible to get relief and make affordable arrangements. But first, let’s look at the details.

In this post, we’ll go through what the statute of limitations is on unfiled tax returns, the consequences of failing to file on time, and how to file back taxes to get back up to date.

What is the Statute of Limitations?

Generally, the IRS can audit returns filed within the past three years. However, this statute of limitations doesn’t begin until a return has been filed. This means that if you haven’t filed your tax return, there is no statute of limitations for the IRS to assess and collect your taxes; the IRS can go back an unlimited amount of time to assess the tax against you.

Once the IRS assesses the taxes, the agency has ten years to collect them. This is called the collection statute of limitations. Again, however, the taxes must be assessed first, and that only happens once you file a return or the IRS files one on your behalf.

However, there is a silver lining – while the IRS can assess any unfiled tax return, they rarely audit returns older than six years. This means that in most situations, you would only need to file six years of returns to catch up. This isn’t the case, however, if they suspect any fraudulent or illegal behavior or believe you have significant tax debts in those years.

What is a Tax Audit?

In short, IRS tax audits are inspections of your financial information to ensure compliance with tax laws and regulations. Audits can be triggered randomly or in response to specific discrepancies on a tax return.

Typically, you will receive a written notice that the IRS intends to conduct an audit, detailing which aspects of the return are under examination. The length of an audit varies based on the complexity of the issues involved; it can range from a few weeks to several months.

The IRS concludes an audit by either accepting the tax return as filed, proposing adjustments (which can be appealed), or, in some cases, referring the matter for further examination or criminal investigation. If you disagree, you can appeal or request an audit reconsideration.

Do I Need to File Past Returns?

Yes, if you have unfiled tax returns in years where you had a filing requirement, it is essential to address the situation and file the past returns with the IRS. Filing past returns is a legal obligation, and failure to do so can lead to various consequences, including penalties, interest, and potential legal actions by the IRS.

Under the current IRS guidelines, you must file a tax return if your gross income and age at the end of 2023 was:

  • $13,850 if single and under 65
  • $15,700 if single and over 65
  • $20,800 if head of household and under 65
  • $22,650 if head of household and over 65
  • $25,700 if married filing jointly, and both spouses are under 65 ($29,200 if only one spouse is under 65)
  • $30,700 if married filing jointly, and both spouses are over 65
  • $5 if married and filing separately, whether over or under 65
  • $27,700 if a qualifying surviving spouse and under 65
  • $29,200 if a qualifying surviving spouse and over 65

There are also a variety of special situations where you may need to file even if your income is under those levels. For example, if you have more than $400 in net self-employment income, you must file a return. Additionally, even if you’re not required to file, you may want to file so that you can get refundable tax credits.

It’s important to note, however, that these are the current regulations for 2023. Previous tax years have different gross income thresholds, so make sure to check the regulations for the tax year you’re filing for. This also means that you may not have to file for every missed return if your gross income was below the threshold for a specific year.

How to File Past Returns

Filing past tax returns and getting back up to date with your tax responsibilities can feel like an overwhelming process, particularly if you have several years of unfiled returns. But, with careful attention to detail and organization, it can be manageable. Here are some tips to help you get through the process.

Gather all Relevant Documents

Collect W-2s, 1099s, receipts, and any other supporting documentation for the years you need to file. This includes income, expenses, deductions, and credits. However, if you have several unfiled returns from separate years, you may not necessarily have this documentation on hand.

Thankfully, there are several ways to obtain the necessary information, including:

  • Your online IRS account: If you have an online IRS account, you can request copies of important documents such as W-2s and 1099s.
  • Form 4506-T: This is a Request for Transcript of Tax Return. This form allows you to obtain a transcript of your previous tax returns, as well as salary and income transcripts.
  • Previous employers: Alternatively, you could reach out to your previous employer to request payment information and forms.

Review Tax Laws for Each Year

Reviewing tax laws for each year when filing past tax returns with the IRS is a critical step in ensuring accurate and compliant submissions. To access tax laws for specific years, you can visit the Forms and Instructions section on the IRS website, scroll or search for the appropriate tax year, and download the forms and instructions you need for the specific year you are filing.

Additionally, legal databases, tax preparation software, or consulting with tax professionals can offer insights into historical tax regulations. This review is essential because tax laws can change annually, affecting deductions, credits, and reporting requirements. By staying informed about the tax laws applicable to each tax year being filed, you can maximize eligible benefits, avoid mistakes, and mitigate the risk of an audit or penalties.

Create a Timeline

When you have multiple tax returns to file, organization is key. Breaking down the filing process into manageable steps and adhering to a timeline can alleviate the stress associated with filing past tax returns. Begin your timeline with the most recent tax year you need to file and arrange the tax years in chronological order.

Assign realistic deadlines for each step of the process, including gathering documents, reviewing tax laws, completing the returns, and submitting them to the IRS. However, consider the complexity of each tax year. If a particular year requires more extensive documentation or has unique circumstances, allocate additional time accordingly.

Before you file your returns, you should speak with a tax advisor, as certain states have amnesty programs you can pursue to limit the total tax, penalties, and interest that may be due.

How to Pay Back Taxes

You can pay the entire amount owed in one lump sum online on the IRS’s online payment portal. You can make payments directly from your bank account (Direct Pay) or with a credit or debit card.

If you owe taxes on your overdue tax returns but are currently unable to pay, there are several options available. This includes:

  • Payment Plan: Set up a monthly payment plan with the IRS to pay off the tax debt over time.
  • Offer in Compromise: An OIC allows eligible taxpayers to settle their tax debt for less than the full amount owed.
  • Currently not Collectible Status: If the IRS decides that you are unable to pay any of your tax obligations, they may report your account as currently not collectible and temporarily postpone collection until your financial situation improves.

Consequences of Not Filing Tax Returns

Failing to file your tax returns can result in several consequences, which vary depending on your unique circumstances. Here are some of the most common consequences.

Unable to Claim Refunds

You have three years to file a tax return and request a refund from the day the return is due. For example, your 2022 tax return was due on April 18, 2023. Therefore, you have until April 18, 2026, to file and request a refund. However, if you fail to file within this timeframe, any potential refunds owed to you for overpaid taxes may be forfeited.

Substitute of Return

A Substitute for Return (SFR) is a tax assessment initiated by the IRS when an individual fails to file a required tax return. In the absence of a filed return, the IRS uses available information to estimate your income and calculate taxes owed. However, the SFR process doesn’t take into account potential deductions, credits, or exemptions that you may be eligible for. Consequently, the SFR typically results in a higher tax liability than if you had filed a return. Further, once the IRS asses the taxes due per their SFR, the taxes may not be dischargeable in bankruptcy.

Typically, the IRS sends a Notice of Deficiency to inform you about the SFR and offers an opportunity to challenge the assessment by filing your own return. If you fail to respond, the IRS proceeds with collecting the assessed amount, potentially through levies, liens, or other enforcement actions.

Penalties and Interest

One of the most common consequences of unfiled tax returns is penalties and interest. There are several common penalties associated with unfiled returns, including:

  • Failure to File Penalty: This applies if you fail to file your tax return by the due date. The IRS calculates the failure to file penalty based on how late you file your return and the amount of outstanding tax as of the initial payment due date (generally April 15 of the following calendar year, even if you extend). The standard failure to file penalty is typically 5% of the unpaid taxes for each month or part of a month that the tax return is overdue, with a maximum penalty of 25% of the unpaid taxes total. If the return is filed more than 60 days late, the minimum penalty is either $435 or 100% of the unpaid tax, whichever is less.
  • Failure to Pay Penalty: This applies if you fail to pay your tax when it’s due. The IRS calculates the failure to pay penalty based on how long your outstanding taxes haven’t been paid. The standard failure to pay penalty is typically 0.5% of the unpaid taxes for each month or part of a month that the payment is overdue. The maximum penalty is capped at 25% of the unpaid taxes. It’s important to note that even if you file your return on time, this penalty can still apply if the full tax amount is not remitted by the payment due date (generally April 15, even if you extend).
  • Accuracy-related penalty: This generally applies if the IRS examines your return and proposes an increase in tax over $5,000. For this penalty, three situations apply: negligence (you fail to make an honest attempt to comply with the tax laws while preparing your tax return), disregard (you intentionally ignored the tax laws), and substantial understatement (you understate your tax by 10% or $5,000, whichever is greater). An accuracy-related penalty generally equals 20% of the portion of the underpayment caused by your negligence, disregard, or substantial understatement.

In addition to penalties, interest is also charged on any unpaid taxes. The interest rate is determined quarterly and is based on the federal short-term rate – which can be found here – plus 3%.

Can I go to Jail for Unfiled Tax Returns?

While the IRS generally doesn’t pursue criminal charges for the sole act of failing to file tax returns, persistent non-compliance and willful evasion of taxes can potentially lead to criminal consequences, including imprisonment. Criminal charges are typically reserved for cases involving intentional fraud, evasion, or other deliberate attempts to evade taxes.

To avoid legal complications and potential criminal charges, it is crucial to address unfiled tax returns promptly, file accurate and complete returns, and work with the IRS to resolve any outstanding tax liabilities.

Get Help Dealing With Unfiled Returns

While the IRS typically only audits returns from the past three years, this statute of limitations only begins from the date the return was filed. This means that there is no statute of limitations for unfiled tax returns, meaning that the IRS can go back indefinitely – although they usually only go as far back as six years in most cases.

It is essential to address unfiled returns promptly to avoid the accumulation of financial liabilities and to bring your tax filings up to date. If you have unfiled tax returns keeping you up at night, call us at Wiggam Law today at (404) 233-9800 or schedule a case consultation.