How Far Back Can the IRS Go for Unfiled 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. A lot of people think the IRS can only go back 10 years, but that applies to collections after a return has been filed. If you haven’t filed, the agency can go back indefinitely, but luckily, if you want to catch up, the IRS typically only requires the last six years of returns. If you have unfiled returns, you are at risk until you get back into compliance. The IRS can use substitutes for returns (SFR) to assess tax and start the collection process at any time. You’ll get plenty of notices before this happens, but the best way to minimize penalties and protect yourself is by coming forward voluntarily. 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. Key takeaways

• No statute of limitations on unfiled returns – the IRS can go back indefinitely.
• 10-year collection clock starts after tax assessment – if you don’t file, it doesn’t start.
• Refunds expire after three years – get those returns done ASAP if applicable.
• Failure-to-file penalty is 5% per month, up to 25% – it’s backdated to the original due date.
• Six years of returns – the IRS typically only requires the last six returns If you come forward voluntarily.

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

There is an unlimited statute of limitations on unfiled tax returns. This means, 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:

• Assessing tax – Three years after you file, six years if you significantly understated the tax due on the return, or indefinitely in cases of fraud.
• Auditing returns – The audit deadline is based on the assessment statute of limitations – there isn’t a separate SOL for audits.
• Collecting 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. There’s also a limit on how long taxpayers have to claim refunds.

IRS Statute of Limitations	Statute of Limitations (SOL)	When the Clock Starts	Key Risks
Unfiled returns	No SOL	N/A	IRS can assess tax at any time if you don’t file
Refund claims	The later of 3 years from the return due date or 2 years after you pay the tax	The return’s due date, without extensions, or the tax payment date	Loss of refunds if you file more than three years late
Assessment	3 years, 6 if substantial tax understatement, no SOL for fraudulent returns	The later of the return due date or filing date	IRS must start audits by this deadline; auditors may ask you to extend the SOL.
Collections	10 years	Date of tax assessment	Liens, garnishments, levies

Time-Based Consequences of Unfiled Tax Returns

The consequences vary depending on how long it’s been since you last filed. In particular, there are a few time periods you should consider.

• Five to six months — This is when the penalty for not filing maxes out (at 25% of the balance due; accrued at 5% per month). If you applied for an extension, this happens five or six months after the extension deadline. If you’re only a few months behind, filing ASAP can help 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 it.
• 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. However, if you wait more than three years to file, you will not generally receive the 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.

• SFR – The IRS may issue a substitute for return (SFR) for you, based on information received from other parties, such as banks or employers. SFRs understate your deductions, leading to a high tax bill.
• Tax liability – Once the IRS generates an SFR, they give you a chance to dispute it, but if you don’t take action, you will owe the tax shown on the SFR.
• Interest and penalties – Once the tax is assessed, the IRS will add interest and penalties.
• Collections – The IRS may use federal tax liens, wage garnishments, asset seizures, and other actions to collect the tax.

Penalties for Unfiled Returns

If you don’t file and you owe, you will face these penalties:

• Failure to file penalty – 5% per month, up to 25%. For example, if you owe $100,000, it’s $5,000 per month, up to $25,000.
• Failure to pay penalty – 0.5 to 1% per month, up to 25%. If both penalties max out, they are capped at 47.5%. That’s up to $47,500 on a $100,000 tax liability.

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. Criminal risk only applies if you didn’t file in a willful attempt to evade taxes.

What Happens If You Don’t File for 3, 5, or 10 Years?

The exact consequences vary based on how many years of unfiled returns you have. Here’s a brief look at three, five, and 10 years, or for more details, look at our guide to unfiled returns from one to 20 years.

Three years of unfiled returns

You can still claim refunds on these returns. You typically cannot get a mortgage if you haven’t filed for three years. If you owe taxes, you will face the maximum failure-to-file penalty (25% of your tax due) on all returns that are more than six months late and a failure-to-pay penalty.

Five years of unfiled returns

You can only claim refunds on the returns that are less than three years late. To get back into compliance, you generally need to file all five years. The IRS also requires the last five years of returns before approving payment plans or settlements.

10 years of unfiled returns

At this point, you’ve lost refunds on at least seven years of returns. You have no way to prove your income for the last decade. You’ll face the maximum failure-to-file and failure-to-pay penalties on many of the oldest years – that’s up to 47.5% of your tax bill.

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.

FAQs on How Far Back the IRS Can Go for Unfiled Returns

How many years can you go without filing taxes?

It depends. Some people go years without filing, others get IRS notices about unfiled returns a few months after the deadline. But remember, that time doesn’t protect you. The IRS can go back to any year and assess taxes against you.

Can you go to jail for not filing taxes?

Yes, but that’s rare. Usually, the IRS deals with unfiled returns by assessing taxes, adding on penalties, and pursuing collections. The IRS only recommends criminal prosecution if an agent believes you willfully failed to file to evade paying taxes – then, you can face felony or misdemeanor charges as well as hefty fines and imprisonment.

What happens if I haven’t filed taxes in 10 years?

The IRS can go back to any of those years to assess tax and start collections. You may struggle to get loans or public benefits if you don’t file. However, if you come forward voluntarily, the IRS will typically only require the last six years of returns – not all 10.

How far back can the IRS collect taxes?

The IRS can collect taxes that are up to 10 years old, but the agency can go after taxes that are a bit older if certain events (for example, applying for an offer in compromise) have paused and extended the clock on the collections statute of limitations. However, if you haven’t filed, there’s no time limit – the IRS can assess tax and start collections for any unfiled year at any time.

Do I have to file all past years if I come forward?

Typically, no. The IRS usually only requires the last six years of returns, but there are a few exceptions, such as situations involving tax fraud. However, if you file more than six years, you can’t take the returns back, and you will have to pay what’s owed. To protect yourself from that risk, work with an experienced tax attorney.

What if I didn’t owe anything?

If you don’t owe anything, you won’t incur penalties or collection actions, but you may still have a filing requirement. Reach out to a tax professional for help if you’re unsure.