How to File Past Unfiled Tax Returns

Are you behind on tax filings? You could be in the hot seat with the Internal Revenue Service (IRS) until you fail to file any outstanding or missing tax returns.

However, you could hire a tax professional to help with the compliance rules so you get back on track and avoid racking up more penalties or facing harsh collection activities against non-filers.

Worried about filing because you owe a sizable amount of federal income tax? A tax relief firm can review your situation, explain your options and advise you on the most practical actions to potentially resolve your tax issues.

What Happens if You Have Unfiled Tax Returns?

Unfiled tax returns are a serious matter. Consequently, the IRS could take the following actions:

Estimate the outstanding amount due on unfiled tax returns
File your taxes for you (using a Substitute for Return), assess a tax liability that will likely be higher than what you actually owe, or take your tax refunds
Assess interest and penalties on unpaid taxes

Quick note: If the IRS uses a substitute for return on your behalf, it won’t include the deductions or credits you’re entitled to.

How Many Years Does the IRS Go Back for Unfiled Tax Returns?

The IRS can legally pursue you for unpaid taxes 10 years after filing your return and taxes being assessed. There are, however, things you can do that will ‘toll’ the statutes. Filing a Bankruptcy, an Offer in Compromise, or a Collection Due Process hearing will all add time to those 10 years. Anything you do that temporarily prevents the IRS from collecting the debt adds that same amount of time to the 10 years.

There is no time limit on collecting federal income tax that has not yet been filed or assessed, including the penalties and interest. The clock has never actually started on these taxes with an assessment from the IRS taking place, so the 10 years hasn’t even begun.

In more serious cases of non-filing, you could face up to $250,000 in fines and five years in prison. But the federal government can only pursue criminal charges for tax evasion six years immediately following the due date of the unfiled return. Typically the IRS only pursues criminal charges on people who refuse to file accurate returns, not people who just haven’t gotten around to it.

How to File Unfiled Tax Returns

Below is step-by-step guidance on how to get up to date on tax return filings.

1. Get The Information Needed for the Past Returns

You’ll need the following to prepare your return:

Income documents, including Form W-2s and 1099s
Self-employment income documents
Investment income documents
Any information related to potential credits and deductions; (be sure to gather records and receipts if you plan to itemize deductions)

If you’ve misplaced your W-2s or 1099 forms from any of the unfiled return years, contact the IRS to request Wage and Income transcripts for those years. You can also request additional time to file the late return and possibly prevent the IRS from accelerating collection agencies.

2. Complete and Submit Tax Returns

The next step is to identify the correct tax forms for that year and prepare your outstanding tax returns. It’s essential to ensure they are accurate to avoid additional issues with the IRS. You can use tax filing software, but it may be more ideal to work with a professional to confirm your income is accurately stated, along with any applicable estimated payments or withholding for that tax year. They can also help you determine if you qualify for a penalty relief option.

Before submitting your tax return(s), confirm the method of transmission and the IRS location where the return should be sent. (You likely won’t have the option to submit the return electronically if the returns are over 3 years old). Also, get proof of filing when you mail the return, as it could come in handy later on if the IRS fails to process your return and tries to take action against you.

3. Monitor Return Processing

Follow-up with the IRS to check the status of your return. Once you confirm it’s been processed, inquire with the IRS to verify that no additional issues need to be resolved regarding that particular tax return. The older the return, typically the longer the IRS will take to process it. Sometimes it can take them anywhere from 3 to 12 months to process an older delinquent tax return.

What If You Owe More Than You Can Pay?

Don’t have the funds on hand to cover your outstanding tax bill? These options are worth considering.

Installment Agreement

The IRS offers the following installment agreement options to help you get back on track:

Long-Term Payment Plans:

Individuals who owe $25,000 or less could be eligible for a 60-month installment agreement if they meet certain criteria
Individuals who owe $50,000 or less could be eligible for a 72-month installment agreement if they meet certain criteria
Businesses that owe $25,000 or less could be eligible for a 24-month installment agreement if they owe $25,000 federal tax

Extended-Term Payment Plan: This arrangement is determined by your income, liabilities, and expenses the IRS classifies as allowable per the national standards of living. The terms are generally negotiated for you by a tax relief firm.

You should also have filed all required returns and be current on estimated tax deposits (if self-employed) before applying for an installment agreement.

Offer in Compromise

The IRS could agree to accept less than what you owe to settle your tax debt. You can request a settlement through an Offer in Compromise (OIC). You could qualify for an Offer in Compromise if you are in financial hardship due to lack of assets and lack of significant income. The Offer in Compromise process can be quite a complicated and lengthy road, so acceptance is most likely achieved with the help of a reputable tax relief firm.