Paying taxes is a responsibility for citizens, and taxpayers should be aware of possible consequences of not filing. However, many people go as long as ten years without filing their taxes, often without calculating the penalties and interest the IRS may impose on unfiled returns.
Are you wondering, “I haven’t filed taxes in 10 years. What do I do?” Then, you’re in the right place. This simplified guide will help you through how to file back taxes, even if you’ve missed multiple years.
Why Don’t People File Their Taxes?
Procrastination: Many taxpayers believe they have more time than they actually do, or they might start the process only to miss the deadline by not completing it.
Lack of knowledge: Some taxpayers don’t have a grasp of tax laws. It may seem complicated.
Financial hardship: People in financial hardship may not have the funds to pay for professional tax advice.
Personal problems: Illness, family emergencies, or other life events may take precedence, and tax preparation may fall to the bottom of the to-do list.
After a few years, they don’t know where to start: Sometimes, taxpayers may feel overwhelmed and unsure of where to start, especially if they’ve missed filing for multiple years.
Poor recordkeeping or no recordkeeping at all: Poor recordkeeping can make it difficult to complete tax returns correctly.
Consequences of Not Filing Taxes
The IRS charges a 5% monthly penalty for late tax returns under the Failure to File Penalty, which can accumulate up to 25% of your unpaid taxes. If taxes are owed and remain unpaid, an additional Failure to Pay Penalty of 0.5% of the unpaid amount is added each month, up to a maximum of 25% of the unpaid amount. Interest on unpaid taxes and accrued penalties is also applied daily.
Many people worry about jail time for not filing but, under the 7201 Code, legal prosecution, including potential jail time, is generally reserved for cases involving deliberate tax evasion, where taxpayers knowingly and willfully avoid paying taxes. For most cases of non-filers, the IRS pursues financial penalties rather than criminal charges.
If you haven’t filed taxes in 2 years:
Even a two-year delay in filing can significantly increase the total amount owed. Although initial penalties may seem manageable, they can add up quickly, reaching up to 25% of your unpaid tax liability if left unaddressed.
If you haven’t filed taxes in 3 years:
Taxpayers who are due a refund want to file as quickly as possible because the IRS only allows you to claim a refund within a three-year window. After three years, any unclaimed refunds are permanently forfeited. For taxpayers who owe taxes, penalties, and interest continue to accrue, adding to your overall tax debt and making it increasingly costly to resolve.
If you haven’t filed taxes in 5 years:
You’re at a higher risk. The IRS may, after five years, file a Substitute for Return (SFR) on your behalf if no tax return is filed. Penalties for not filing taxes for 5 years can include an SFR filed by the IRS, leading to higher tax liability due to limited deductions. An SFR typically results in a higher tax liability because it includes only basic deductions, such as the standard deduction, and may exclude specific credits or itemized deductions that could reduce tax liability. Following the SFR, the IRS may initiate collection actions, such as wage garnishments, bank levies, property liens, or, in extreme cases, asset seizures.
State-Specific Tax Collection Rules: In California, the Franchise Tax Board has a 20-year collection period, and garnishments may include wages, bank accounts, and other assets. In New York, a payment by the taxpayer or an acknowledgment of an indebtedness in writing by the taxpayer no longer extends the 20-year time limit as under prior law. That is why, you should research your state’s unique rules to avoid unexpected actions.
If you haven’t filed taxes in 10 years:
By this point, the IRS may have prepared substitute for returns, assigned a taxpayer’s case to a Revenue Officer or even taken legal action. In cases of willful evasion, additional penalties and/or, in rare cases, jail time may apply.
Quick Wins: Essential Tips for Tackling Long-Term Unfiled Taxes
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IRS Notices and How to Respond
CP59 (First Notice for Non-Filing): Review your records and respond promptly with a completed tax return to avoid further penalties.
CP2556 (Proposed Assessment): Address inaccuracies or provide missing information to reduce tax liability.
Statutory Notice of Deficiency: This is your final chance to contest the IRS’s calculations. Consider filing a petition with the Tax Court if needed.
“Filing back taxes is not just a financial responsibility but a legal obligation under federal law,” explains Gene Haag, Enrolled Agent (EA) and Managing Partner at Precision Tax Relief Company. “The IRS has the authority to enforce compliance through penalties, wage garnishments, and, in extreme cases, asset seizures. However, taxpayers retain the right to challenge assessments, negotiate settlements, and utilize legal protections to mitigate the impact of non-compliance. Understanding your rights and obligations is crucial to navigating the process effectively.”
CP515 (Request for Tax Return): File the missing return immediately to prevent the IRS from taking further action, such as filing a Substitute for Return (SFR) on your behalf.
CP504 (Final Notice Before Levy): Resolve your tax debt or request a Collection Due Process hearing to stop the IRS from seizing your assets.
What Happens If You Don’t File Taxes for Your Business?
Why should you file your taxes? Whether you’re an individual or a business, you must report all taxable income and pay taxes according to the Internal Revenue Code. Filing taxes is important for paying your tax debt, but also for obtaining any refunds and claiming deductions. This approach helps reduce your overall tax burden and prevents further debt accumulation by avoiding penalties and interest.
Of course, the consequences are different for each company. However, some general implications are:
- Fines and interest
- Loss of deductions and credits
- General tax liens
- Substitute for Return (SFR)
- Revocation of corporate status
Negotiate the Tax Bill
Unpaid taxes can lead to accumulating penalties, and in extreme cases, prosecution, but there is always an opportunity to negotiate with the IRS. There are multiple options available to resolve the tax bill. You can talk to the IRS about an installment plan; even if it is a partial payment, it can help reduce interest that is accruing. Submitting an Offer in Compromise can allow you to demonstrate financial hardships that may qualify you for debt reduction. Working with a tax professional can help make this process smoother and reduce the chances of errors.
John T. owed $172,441 in back taxes, facing years of financial strain and escalating penalties. After struggling to find reliable help, he contacted us. Our team carefully analyzed his financial situation and guided him through an Offer in Compromise. The IRS accepted his offer, and his tax debt was settled for just $100. John now enjoys financial freedom and peace of mind, relieved from the burden of his past debts. You can read our other client successes.
We understand how overwhelming unpaid taxes can feel. The anxiety of receiving IRS notices or worrying about wage garnishment can take a toll on your well-being. Let our experienced team help you navigate the process step-by-step, reducing both your financial and emotional burden.
How to File Back Taxes in 5 Steps
Are you asking yourself, “How do I deal with the IRS for back taxes?” Don’t panic, just keep reading.
Gather Necessary Documents
Foremost, collect all relevant documentation for each tax year.
- W-2s or 1099s for income received.
- Bank statements, receipts, and invoices for deductible expenses.
- Records of tax credits or deductions for which you’re eligible.
- Any real estate, mortgage statements, and property tax documents.
- Statements of investment accounts, including capital gains and losses.
- Request a Wage and Income Transcript via the IRS website or Form 4506-T to reconstruct your income history if needed.
Prepare Your Tax Returns
Use the information that you have gathered to determine what your taxes should be. Carefully fill out and complete your tax return(s), including every source of income, and claim every available deduction.
- If you’re filling by hand, printable prior-year tax return forms are available.
- You can use tax preparation software to file back taxes.
- Get help with tax returns from a tax professional.
If you’re new to filing back taxes, it’s okay. Determine which tax years you need to file, as the IRS typically requires returns for the past six years. If this process seems overwhelming, consider getting help from our team by requesting a free initial consultation.
Sign and Submit Your Return
If you completed your tax return using online tax software, print the finished return and mail it to the address specified in that year’s instructions. The most recent year’s return may be eligible to e-file, but delinquent returns will need to be mailed. When mailing returns, it is important that each return is mailed separately.
What is a deficiency assessment?
After a tax return is filed, the IRS may review it and find discrepancies. A deficiency is the difference between the tax amount reported by taxpayers and what the IRS determines is actually owed. The IRS notifies taxpayers of this deficiency through a deficiency letter.
Consider Professional Help
Filing back taxes can be daunting, but a qualified tax professional can assist you in several ways:
- Navigate through the tax return process.
- Track down tax deductions and credits you may have missed.
- Negotiate with the IRS to minimize penalties and interest.
- Establish a payment plan or settlement offer, if necessary.
Address Any Outstanding Tax Debts
The IRS offers various solutions for taxpayers:
- Paying the full amount owed, if possible.
- Paying the debt in monthly installments.
- Set up an online IRS account to manage monthly payments tailored to your financial situation.
- Asking for a settlement offer to pay the debt for less than the full amount owed.
- Sentence reduction or other relief programs.
Reducing your tax debt is not just about numbers; it’s about restoring your financial freedom and peace of mind. Let us help you avoid financial ruin and reclaim control over your life. Call us today before penalties increase.
Avoid penalties, protect your assets, and regain peace of mind with our simple 4-step guide:
IRS Voluntary Disclosure Program
The IRS Voluntary Disclosure Program allows taxpayers with unreported income to come forward, provide truthful and complete information, and resolve their tax issues. It does not apply to income from illegal activities.
A voluntary disclosure happens when a taxpayer truthfully reports all necessary details, cooperates with the IRS, and arranges to pay their full tax liability.
A disclosure is timely if it is made before:
- The IRS starts a civil or criminal investigation or notifies the taxpayer of one.
- The IRS gets information from a third party (like an informant or media) about the taxpayer’s noncompliance.
- The IRS begins a related investigation or obtains related evidence through criminal enforcement actions.
To start, contact your local IRS Criminal Investigation office or call the IRS Voluntary Disclosure Hotline at (215) 516-4777. More information is available at www.irs.gov.
Conclusion
Each passing year increases the penalties, compounding the total owed. However, with a well-planned approach, these penalties can be minimized. Consulting with an expert can make navigating tax laws more manageable and help reduce high tax penalties.
Frequently Asked Questions
The IRS has a 10-year statute of limitations on federal tax debt, starting from the date of the tax assessment, not from when you filed your tax return.
The IRS can charge penalties and interest. They may file a Substitute for Return (SFR) and start collection actions like wage garnishment or bank levies.
Failure to file a tax return is a federal crime under IRC 7203. And, willful tax evasion is a felony under IRC 7201.
Legally, you have up to three years to file taxes.
You should contact the IRS to make arrangements. The IRS offers payment options to help you.
There are four ways to inform your address changes. First, you can fill out Form 8822 or Form 8822-B. Second, you can use your new address when you file. Third, you can send a signed written statement. And the last, you can tell them in person or by telephone.
Call 800-829-1954 or 800-829-1040 to initiate a refund trace. However, if you have already filed a married filing jointly return, you should download and complete Form 3911.
Call 800-829-1040 to correct any agency errors.
Not paying your taxes may affect your life in many ways. When you apply to some institutions, they may also request a tax certificate from you among the necessary documents—for example, applying for a passport or health insurance.
The IRS gives 10 years to collect the relevant tax debts and all related penalties and interest. Then the taxes are considered the statute of limitations. That is, you’ll be free of tax debts.
If you purposely dodge paying your taxes, yes, it’s a major crime. In the end, it could lead to five years in jail and a fine up to $250,000 for individuals (or $500,000 for businesses).
According 2023 Tax Evasion Statistics, 63.3% of the people involved in tax fraud cases were sentenced to prison in FY2021.
Owing tax and filing are two different situations. So you may still have to submit a return. If your gross income is more than the automatic deductions for the year, you need to file your return. And you may be subject to the failure-to-file penalty.
Yes, you must still file your taxes this year, even if you didn’t file last year. File any missing returns as soon as possible to avoid penalties.
You can file your income tax return for up to 10 years. However, to claim a credit or refund, you have 3 years from the date you filed your federal income tax return or 2 years from the date you paid the tax, whichever is later.
Skipping a year can result in penalties, interest, and potential legal issues. It’s best to file any missed returns as soon as possible.
The IRS prepares an SFR based on your income but excludes deductions and credits, resulting in higher taxes. You can still file your original return to replace the SFR.
The IRS may not have your current address, or you might be due refunds instead of owing taxes. Create an IRS account online to check your tax history.
Request your Wage and Income Transcript from the IRS using Form 4506-T or create an IRS online account to download them directly.
Yes, you can request an Offer in Compromise or apply for Currently Not Collectible status if you prove financial hardship.
Asset seizure is rare and typically reserved for extreme cases of non-compliance or fraud. Wage garnishments and bank levies are more common.
Yes, not filing your taxes could affect your Social Security benefits if you fail to report income that counts toward your benefits.
An IRS audit reviews your filed tax return for accuracy, while non-filing penalties are charges for failing to file your taxes on time.
The IRS may not have contacted you yet, but they can take years to identify non-filers and will eventually reach out.
You can request tax transcripts from the IRS or gather records from banks, employers, or other financial institutions.
The IRS may allow you to set up a payment plan or temporarily delay collection if you can prove financial hardship.
There is no time limit for the IRS to pursue unfiled taxes if you owe money, but penalties grow the longer you wait.
The IRS generally accepts returns for the past six years, but filing older returns can still help resolve your tax issues.
The IRS can pursue unfiled taxes indefinitely if you owe money, but you lose refunds if you wait more than three years to file.
The IRS creates a Substitute for Return (SFR) when you don’t file, using their own estimates to calculate your tax debt.
The IRS charges a 5% monthly penalty for late returns, capped at 25% of unpaid taxes, along with a 0.5% monthly penalty for unpaid amounts.
You can request a Wage and Income Transcript from the IRS for lost W-2s or 1099s and use bank statements or receipts to reconstruct missing data.
Failing to file taxes can result in penalties, interest, wage garnishments, property liens, or even legal actions in extreme cases.
The IRS generally requires filing for the past six years to get back into compliance, but earlier years may be necessary in certain cases.
Filing taxes late can result in penalties and interest. The IRS charges a Failure to File Penalty of 5% of unpaid taxes per month, up to 25%. If you owe taxes, you’ll also face a Failure to Pay Penalty of 0.5% per month, plus daily interest on the balance.
Self-employed individuals who never filed taxes may face higher liabilities due to unreported income. However, filing back taxes and claiming deductions for business expenses can significantly reduce what’s owed.
Filing your tax returns quickly helps you claim any refunds before it’s too late, avoid extra penalties, and stop the IRS from taking serious actions like seizing property or garnishing wages.
If you don’t file taxes, you might lose thousands of dollars in tax credits each year. If you owe money, the IRS will find out and add extra penalties and interest to what you owe. In some cases, not filing can even lead to criminal charges for avoiding taxes. Filing your taxes helps you avoid these problems and claim any refunds you deserve.
