Dealing with Unfiled Tax Returns and IRS Statute of Limitations
Ploeg and Brown P.C.
What to Do About Unfiled Taxes and How to Deal with Back Taxes
If you have unfiled tax returns, it’s crucial to address them promptly to avoid severe consequences. Here’s how you can handle unfiled taxes and manage back taxes effectively.
Can I Lose My Tax Refund If I Don’t File My Taxes?
Yes, if you don’t file your taxes, you can lose your tax refund. The IRS allows a three-year window to claim a refund. After this period, the unclaimed refund becomes the property of the U.S. Treasury.
Consequences of Not Filing Taxes
Failing to file your taxes can result in several consequences, including:
- Penalties and interest
- IRS collection actions
- Loss of tax refunds
- Increased scrutiny and potential audits
Tax Penalties and Interest
The IRS imposes penalties and interest on unfiled tax returns and unpaid taxes. These can quickly accumulate, significantly increasing your tax liability.
Substitute for Return (SFR)
If you don’t file your tax return, the IRS may file a Substitute for Return (SFR) on your behalf, using available information. An SFR doesn’t consider all deductions and credits you may be eligible for, often resulting in a higher tax bill.
Collection Actions for Unpaid Taxes
The IRS can take various collection actions for unpaid taxes, including:
- Wage garnishments
- Bank levies
- Tax liens on your property
Tax-Related Identity Theft
Unfiled tax returns can increase the risk of tax-related identity theft. Filing your returns promptly helps protect your personal information.
Penalties for Filing Taxes Late
Filing taxes late results in penalties, which include:
- Failure to File Penalty: 5% of the unpaid taxes for each month the return is late, up to 25% of the unpaid taxes.
- Failure to Pay Penalty: 0.5% of the unpaid taxes for each month the taxes are unpaid, up to 25% of the unpaid taxes.
Do I Need to File Back Taxes?
You need to file back taxes if:
- Your income exceeds certain thresholds based on your filing status.
- You owe specific taxes like the alternative minimum tax, early withdrawal penalties, household employment taxes, Social Security, or Medicare taxes on tips.
- You have over $400 in net earnings from self-employment.
Income Thresholds for Filing Taxes
- Single: Over $12,550
- Married Filing Jointly or Qualifying Widower: Over $25,100
- Married Filing Separately: Over $5
- Head of Household: Over $18,800
Do I Have to File a Return for Every Year I Missed?
The IRS generally requires you to file returns for the last six years. However, if you owe taxes, it’s advisable to file for all missed years to avoid potential issues.
What is Form 15103 Sent With My Late Return Notice?
Form 15103 is sent by the IRS with a late return notice to gather additional information and ensure the accuracy of your tax filings.
What If a Deceased Person Has Unfiled Tax Returns?
If a deceased person has unfiled tax returns, the executor or administrator of their estate must file the required returns and settle any outstanding tax liabilities.
What If a Self-Employed Person Doesn’t File Taxes?
Self-employed individuals must file taxes if their net earnings exceed $400. Failure to file can result in severe penalties and interest, along with potential IRS collection actions.
What If You Don’t Report 1099s?
Failing to report income from 1099 forms can lead to underreporting penalties, interest on unpaid taxes, and potential audits.
What Is the IRS Statute of Limitations on Unfiled Tax Returns?
The IRS statute of limitations varies based on the situation:
- Unfiled Returns: No statute of limitations exists for unfiled returns. The IRS can assess taxes at any time.
- Filed Returns: The IRS generally has three years to audit a return. This period extends to six years if you underreport your income by 25% or more.
- Tax Collection: The IRS has ten years to collect unpaid taxes from the date of assessment.
- Tax Refunds: You must claim a refund within three years of the original filing deadline.
Statute of Limitations on Unfiled Returns
There is no statute of limitations for unfiled returns, meaning the IRS can assess taxes and pursue collection indefinitely.
Statute of Limitations on Tax Collection
The IRS has ten years from the date of assessment to collect unpaid taxes.
Statute of Limitations on Tax Refunds
You must file a return to claim a refund within three years of the original due date, or two years from the date you paid the tax, whichever is later.
Statute of Limitations on Tax Collections From Returns Filed After SFR
If you file a return after the IRS has issued an SFR, the statute of limitations for collection remains ten years from the date of assessment.
How Do I File Unfiled Tax Returns?
To file unfiled tax returns:
- Gather all necessary documents (W-2s, 1099s, etc.).
- Complete the tax returns for each year.
- Submit the returns to the IRS, preferably through certified mail or electronically.
How Many Years of Back Taxes Do I Need to File?
Typically, you need to file returns for the past six years. However, filing all unfiled returns is advisable if you owe taxes.
How to Pay Back Taxes From Unfiled Returns
Options to pay back taxes include:
- Payment Plans: Set up monthly payments with the IRS.
- Offer in Compromise: Settle your tax debt for less than the amount owed.
- Partial Payment Plan: Reduce the balance and make monthly payments.
- Penalty Abatement: Request removal of penalties from your account.
- Currently Not Collectible Status: Pause IRS collection actions until your financial situation improves.
Conclusion
Addressing unfiled tax returns is essential to avoid severe IRS penalties and interest. By understanding your obligations and taking prompt action, you can manage back taxes effectively and stay compliant with tax laws.