How Far Back Can the IRS Go for Unfiled Taxes?

September 8, 2023 | Tax Compliance | Tax Relief

How Far Back Can the IRS Go for Unfiled Taxes?

Meta description: The IRS can go back an unlimited amount of time for unfiled tax returns. Don’t wait for the agency to find you. Be proactive about dealing with back taxes.

How Far Back Can the IRS Go for Unfiled Taxes?

There is no limit to how far the IRS can go back for unfiled taxes. If you haven’t filed for years and you’re worried that the agency may come after you, that’s a valid concern. Legally, the IRS can assess tax for any year that you haven’t filed, and if you don’t pay voluntarily, they can use all kinds of collection tactics to get the money.

Unfiled taxes can keep you up at night, and for most people, the main concern is the unknown. Will the IRS catch you? How will they find you? What happens once they do? Are there other consequences of not paying your taxes? The consequences of not filing vary based on how long you didn’t file. To help you learn more, we’ve put together this guide — or contact us today at the Timothy S. Hart Law Group to get help.

What Is the IRS Statute of Limitations on Unfiled Tax Returns?

There is an unlimited statute of limitations on unfiled tax returns. This means that regardless of how long it’s been since you missed filing a return, the IRS can look at that tax period and take action. For most other IRS actions, the agency has a very specific amount of time that they can take action.

Other IRS Statute of Limitations

Here are other actions that the IRS can take and the statute of limitations for each of them:

  • Auditing your tax return — Three years after you file, or six years in cases with extreme tax understatements.
  • Assessing a tax against you — Three years after the filing deadline or three years after you file, whichever is later.
  • Collecting an unpaid tax — 10 years after the tax was assessed.

The reason that unfiled returns have no statute of limitations is that it is a very serious issue. You see a parallel with other crimes. For instance, you only have a couple of years, in most cases, to charge someone with crimes like theft, but in murder cases, there is no statute of limitations.

Time-Based Consequences of Unfiled Tax Returns

The consequences vary depending on how long it’s been since you haven’t filed. In particular, there are a few time periods you should consider.

  • Five months — This is when the penalty for not filing maxes out (at 25% of the balance due). If you applied for an extension, this happens five months after the extension deadline. If you’re only a few months behind, filing ASAP can help you minimize this penalty.
  • Two years — Around the two-year mark is when the failure-to-pay penalty maxes out (at 25% of the balance). This penalty is .5 to 1% of your balance every month, and if you file and make payment arrangements within two years or so, you can minimize this penalty.
  • Three years — You only have three years from the due date to file a tax return for a refund. When you’re due a refund, you don’t have to worry about interest or penalties — in fact, the IRS will pay you interest when you claim an old refund.

These aren’t the only consequences of not filing. The IRS can also take many other actions against you. We look at those in the next section.

What Does the IRS Do If You Don’t File Your Tax Returns?

The IRS has a lot of tools to enforce tax administration and collection. If you don’t file, the IRS may issue a substitute for return for you. Sometimes called an SFR, a substitute for return is a tax return that the IRS prepares based on information received from other parties such as banks or employers. These returns typically overstate your income and understate your deductions, leading to a high tax bill.

However, the IRS must take this step before it can collect any tax. Once an SFR has been generated, the IRS sends it to you and requests a response. At this point, you can dispute the SFR and file a correct return. But if you don’t take action, the tax shown on the SFR will be assessed against you.

Then, the IRS will try to collect the tax. Remember, the IRS can only collect assessed taxes, so this won’t happen until you file a return or the IRS generates an SFR. The IRS may use federal tax liens, wage garnishments, asset seizures, and other actions to collect the tax. Once the tax is assessed, it will also have interest and penalties added to it.

Penalties for Unfiled Returns

The IRS adds penalties to your account if you don’t pay your taxes on time or if you file late. The penalties for unfiled returns are 5% of your tax debt every month, up to 25%. Here’s how that works.

Say that you file three months after the due date, and your return shows that you owe $10,000. At this point, you would have incurred three months of the failure to file fee. At 5% per month, this penalty is $1,500.

Or imagine that you don’t file at all, and the IRS generates an SFR two years after the filing deadline. The SFR shows that you owe $10,000. Then, the failure-to-file penalty would be maxed out at $2,500.

On top of these penalties, you will also incur failure to pay penalties, and the IRS will add interest to your account.

Additionally, if the IRS believes that you didn’t file due to fraud or tax evasion, you can face even higher penalties. Civil penalties for fraud can be up to 75% of the balance due. Criminal penalties can be up to $100,000 plus jail time. Penalties are even higher for corporations.

Tax-Related ID Theft

Not filing your taxes can make you vulnerable to tax-related ID theft. With tax ID theft, a criminal takes your information and files a return showing a refund. Then, they direct the refund to their account. Unfortunately, this is more common than you may expect.

To find out if someone has been filing with your information, you can set up an online account with the IRS. This will show you all of the wage and income documents that have been submitted with your details. It will also show returns filed and any balances due.

Do I Need to File Back Taxes?

This depends on the situation. If you are required to file, then yes, you should file back taxes for the years that you missed. If you were not required to file (for example, if your income was under the filing threshold), you might have still been eligible for a refund — if so, you should get your returns in before that three-year deadline passes. There are billions of dollars in unclaimed refunds every year, and there’s no reason to let the IRS keep your money.

If you owe taxes, the situation is a bit different, but here’s the good news — you probably only need to file the last six years. Typically, when you come forward proactively, the IRS only requires you to file six years of returns, and you don’t have to worry about the rest. Again, however, the rules are different if fraud or tax evasion was the reason you didn’t file. If you believe that you may have committed tax evasion, you should consult with a tax attorney immediately.

How to Pay Back Taxes

In a lot of cases, people don’t file because they don’t know how they’re going to pay the bill. Luckily, the IRS understands that it isn’t always possible to pay in full and on time, and to help, the agency offers several different payment plans. Consider the following:

  • Installment agreements — You get to make monthly payments until you pay off the balance in full. The application process and payment terms vary based on how much you owe and other factors.
  • Partial payment installment agreement — With a PPIA, you make monthly payments, but you don’t have to pay the full balance. You pay the amount you can afford, and on the collection statute expiration date, the IRS waives the remaining balance.
  • Offer in compromise — You offer a settlement (less than you owe). Then, the IRS reviews your financials, and if you’ve offered the most you can afford, the IRS accepts the offer and waives the remaining balance.

You should also ask for penalty abatement. File all of your returns, then ask for abatement on all penalties. Ensure you set up a payment arrangement as soon as possible to avoid more penalties. The IRS may or may not forgive your penalties, but you should always ask for forgiveness regardless of the situation.

Get Help With Unfiled Tax Returns

At the Timothy S. Hart Law Group, our tax attorneys help people deal with these types of situations every day. We can help you assess the consequences, help you figure out which returns to file, and then guide you through the payment process.

Don’t let unfiled returns continue to stress you out. Instead, get help today. We can help you file unfiled returns and set up payment arrangements on back taxes. For a free consultation, contact us today.

Attorney Timothy Hart

Timothy S Hart, the founding partner of the tax law firm of Timothy S. Hart Law Group, P.C. is both a New York Tax Lawyer & Certified Public Accountant. His area of expertise includes innovative solutions to solve your Internal Revenue Service and New York State tax problems, including tax settlements through the Federal and New York State offer in compromise programs, filing unfiled tax returns, voluntary disclosures, tax audits, and criminal investigations. [ Attorney Bio ]