How far back does the IRS go for unfiled tax returns?
Tax Day has come and gone. You still haven’t filed your taxes. You’re likely worried about fines and penalties or are unsure how to file late tax returns. You might think you can ignore your unfiled taxes and face them later.
But that’s the worst thing you can do.
What Happens If You Don’t File Tax Returns
If the IRS owes you a refund, there are no penalties for failing to file an income tax return. You might qualify for the IRS Free File program, where you can file your taxes for free online. But that means you’re letting the IRS keep some of your hard-earned money.
You have three years to claim that refund; the average amount paid out was $3,011 in 2024. That’s up 4.6% from 2023. If you overpaid taxes in 2023, it’s worth filing your returns and collecting what the IRS owes you.
What If You Owe Taxes And Haven’t Filed?
If you’re reading this, there’s a good chance you weren’t one of the millions receiving tax refunds in 2024. You probably have taxes due and haven’t filed because you don’t know how to pay them.
If you don’t file, the IRS can enter a Substitute for Return, which could lead to a larger tax bill than you owe because the IRS won’t factor in any deductions or tax credits you are due.
You can still file an accurate return after the IRS files a Substitute for Return. However, it can be a complicated process, and you should seek help from tax professionals to do it correctly.
If you missed the tax deadline and failed to file for a six-month extension, you should understand the other costly ramifications.
Interest and Penalties
If you failed to file for an extension, the IRS enforces a Failure to File penalty equaling 5% of the taxes due for each month or partial month your tax return is late. The penalty can’t exceed 25% of your tax debt.
The IRS also charges a Failure to Pay penalty of 0.5% of the total taxes you owe. For the first five months, your Failure to File penalty is reduced by the amount of the Failure to Pay penalty, which means penalties won’t accrue at a rate faster than 5% each month.
Failure to File penalties max out 100% of the amount you owe or $485 for tax returns due on or after December 31, 2023, whichever is least.
Failure to Pay penalties continue adding up, maxing out at 25% of the total amount due.
Wage Garnishments, Levies, and Tax Liens
If you continue to avoid filing or paying your taxes, the IRS can issue Notices of Tax Levies and tax liens. Meaning, the IRS can seize your assets, including bank accounts, investments, vehicles, or real estate, to cover your tax debt.
You can remove the tax lien by paying your tax debt in full or setting up an installment agreement with the IRS.
The IRS can also garnish your wages, but won’t issue liens, levies, or begin wage garnishment without notifying you. As soon as you receive a letter from the IRS, you should contact tax relief experts like those at Alleviate Tax to help you find a better solution.
Other Penalties
In addition to adding penalties and interest to your tax debt, the IRS can request that the State Department revoke your passport if you have more than $62,000 in unpaid tax debt, including assessed penalties and interest. The IRS adjusts this number annually in line with inflation, so if you have a significant amount of tax debt, you should seek help from a tax debt relief service like Alleviate Tax before it grows any larger.
Tax Evasion Charges
If the IRS has reason to believe you have willfully avoided paying or filing taxes, it could charge you with tax evasion. If found guilty, you could pay fines of up to $100,000 and even face jail time of up to five years.
If this worst-case scenario happens, you’ll want to enlist the help of a tax lawyer to help you fight the charges, reduce penalties, and work out a payment plan for your unpaid tax debt. There is a way out, and it’s easier if you face your tax debt sooner rather than later.
How to Fix Unfiled Taxes
If you’re behind on unfiled taxes, it’s important to face your tax situation immediately. Gather any bank statements and receipts showing deductions that could help you reduce your tax liability. Take note of any credits you may qualify for.
Speak with a professional who can help you implement other legal tax avoidance strategies to reduce what you owe. Work with a tax expert and file your returnsto resolve your tax debtl.
Avoid Failure-to-File Penalties
Filing your taxes by the April 15 deadline can help you avoid costly failure-to-file penalties and possibly avoid accusations of tax evasion. If you don’t establish an installment agreement before April 15, you may still have to pay failure-to-pay penalties, which are smaller than those for failing to file.
IRS Statute-of-limitations on Unfiled Tax Returns
There is no statute-of-limitations on unfiled tax returns. However, the IRS has a statute-of-limitations for criminal tax evasion charges. They can’t pursue criminal charges for tax evasion after six years.
The IRS rarely pursues unfiled tax returns after that six-year mark. But you aren’t likely to get away with failing to file that long without facing tax liens, wage garnishment, and potentially criminal charges.
How to Resolve Your Unpaid Tax Debt
If unpaid tax debt keeps you from filing your taxes on time, know there are solutions. The IRS wants its money, so it will work with you to create a payment plan that fits your budget.
However, you aren’t likely to qualify for any tax debt relief programs until your tax filings are current.
Offer in Compromise
If you can’t afford your tax debt, you might be able to negotiate an offer-in-compromise to pay a small percentage of what you owe. Alleviate Tax resolved more than $6.5 million in tax debt through an offer in compromise for our clients in 2023.
Installment Agreement
The IRS offers installment agreements and partial-pay installment agreements to help you pay off your tax debt within 72 months. Payment plans, or short-term installment agreements, may last 180 days, allowing you to save money and put your tax debt behind you.
Hire a Tax Professional to Help
The experts at Alleviate Tax are here to help you catch up on unfiled tax returns, avoid fines and penalties, and eventually achieve freedom from tax debt. Navigating IRS laws and filing accurate returns isn’t easy. Our tax professionals are here to help.
FAQ
What do I do if I have unfiled taxes?
You should file late tax returns as soon as possible, even if you can’t pay the total amount you owe. Otherwise, you might face tax liens, wage garnishment, and potential tax evasion charges.
What is the penalty for unfiled taxes?
The IRS charges a 5% Failure to File penalty for every month or partial month you haven’t filed your tax returns, to a maximum of 25% of your total tax due.
Does the IRS always catch unfiled taxes?
The IRS is short-staffed and backed up on paperwork, so you could avoid filing taxes for years before getting caught. However, the tax debt and penalties will continue adding up, and tax evasion charges could result.
In 2024, the IRS announced that it plans to pursue high-income earners (those who make more than $125,000) who haven’t filed returns since 2017. It’s not worth taking a chance.
How far can IRS go back on unfiled taxes?
There is no statute-of-limitations on unfiled taxes.
