Unfiled Tax Returns

A majority of issues stemming from unfiled returns result in civil penalties. In some cases, taxpayers can be issued criminal tax penalties that carry hefty fines and prison time.

If your return was not filed by the due date:

• You may receive Failure To File (FTF) penalties unless you can prove reasonable cause.
• You may receive Failure To Pay (FTP) penalties unless you can prove reasonable cause.
• You may risk losing a refund from the current tax return or from previous years’ tax returns
• The IRS may send a non-filer notice with Form 15103.
• The IRS can issue a Substitute For Return (SFR) after sending out a CP3219N notice. An SFR is a tax return prepared by the IRS without your involvement as a punishment for not filing.
• Once the IRS assesses taxes, they may send notices threatening to seize your assets such as a CP504 or a CP504B for business taxes.
• Lenders won’t be able to use your tax return to verify your income, making it difficult to take out mortgages or other loans.
• The IRS will start to take collection actions quickly after you miss a deadline for paying or filing your taxes.

Technically, the IRS can go back to any unfiled tax return year and apply penalties. However, they usually only evaluate the last six years for penalty enforcement. Generally, the IRS only has 10 years to collect unpaid taxes, but the clock doesn’t start until you file a return or the agency assesses a tax against you through an audit or an SFR.

Our tax attorneys will help you resolve your unfiled taxes and the overwhelming tax debt that comes with them.

You must file a tax return if you have more than $400 in self-employment income. The IRS requires self-employed freelancers and sole proprietors to report their business income and expenses. Generally, you must file Schedule C with your individual income tax return, but if you have rental income or farming income, you file Schedules E and F, respectively.

If you’ve never filed, you can get caught up, but you’ll have to do reconstructive bookkeeping and file more forms than the average taxpayer.

When you file your taxes late, you will be charged interest on any unpaid balance. In addition, you might be at risk of Failure To File penalties, which are 5% of the unpaid balance for each month you are late to file. This can add up to a total of 25% of the unpaid tax. Don’t ignore IRS notices about penalties, or they will continue to build, and the IRS may escalate to more serious collection actions.

In most instances, a Substitute For Return (SFR) is the worst case scenario for taxpayers who have not filed their return on time. An SFR is a return prepared by the IRS for the taxpayer based on the information they have on hand. This consequence can deprive the taxpayer of exclusions and exemptions they may be entitled to, which could increase their total amount owed and lead to more penalties.

Reasonable cause for not having filed your federal taxes can include, but is not limited to:

• Fire, casualty, natural disaster or other disturbances
• Inability to obtain records
• Mistakes made in filing
• Death, serious illness or unavoidable absence
• Extreme hardship
• Mistaken advice from a tax preparer or accountant

The IRS has been known to accept reasonable cause for many other reasons as well. Don’t be afraid to share your situation or story for reasonable cause.

If you also have unfiled state taxes, reach out to a tax professional who can help you prepare tax returns for your state as well. Failure to file state returns can lead to interest, penalties, and collection actions, but you’ll receive a letter like a notice of proposed assessment before any of that happens.