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There are various reasons why you haven’t filed your tax return for the current year or even for a number of previous years.
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While the ideal reason would be that you are not required to file a federal tax return, some other common reasons include not knowing that you are required to file, not taking the time to complete a tax return (an ordinary reason with taxpayers who are due a refund) or not having the funds to pay what is owed.
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Assuming you have not received a notice from the IRS telling you how much you owe for a substitute return (meaning a tax return the IRS files for you and which does not take into account exemptions and deductions you may be entitled to), here is what you should do if you haven’t filed a tax return.
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Make sure you are required to file a return.
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If you are a U.S. citizen or resident, whether you must file a return depends on three factors: your gross income, your filing status, and your age. For instance, if you are single, under 65 at the end of the tax year, and you have a gross income of at least $10,000, then you are required to file a federal tax return.
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Even if you know with all certainty that you don’t owe any taxes, you may still want to file a federal tax return because it’s the law and (as of this year for instance) to get the health coverage tax credit or to be able to get mortgage information.
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Regardless of your reason for not filing a required return, file your tax return as soon as possible.
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It’s important to understand the ramifications of not filing a past due return and the steps that the IRS will take. Taxpayers who continue to not file a required return and fail to respond to IRS requests for a return may be considered for a variety of enforcement actions.
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| There is no penalty for failure to file if you are due a refund. But, if you wait to file a return or otherwise claim a refund, you risk losing a refund altogether. An original return claiming a refund must be filed within three years of its due date for a refund to be allowed in most instances. |
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After the expiration of the three-year window, the refund statute prevents the issuance of a refund check and the application of any credits, including overpayments of estimated or withholding taxes, to other tax years that are underpaid.
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However, the statute of limitations for the IRS to assess and collect any outstanding balances does not start until a return has been filed. In other words, there is no statute of limitations for assessing and collecting the tax if no return has been filed.
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If your return was not filed by the due date (including extensions of time to file), you may be subject to the failure to file penalty, unless you have reasonable cause for your failure to file timely. If you did not pay your tax in full by the unextended due date of the return (regardless of extensions of time to file), you may also be subject to the failure to pay penalty, unless you have reasonable cause for your failure to pay timely, or the IRS has approved your application for extension of time for payment of the tax due to undue hardship. Additionally, interest is charged on taxes not paid by the due date, even if you have an extension of time to file. Interest is also charged on penalties.
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| When you file a tax return on time, the IRS only has three years to examine it further and assess additional taxes, if necessary. If you never file a tax return, this time limitation never begins, effectively giving the IRS an unlimited amount of time to assess tax. This means that if the IRS realizes a decade later that you failed to file multiple returns, it retains authority to assess taxes. The burden will be on you to prove that the IRS assessment is inaccurate. As time passes, this may be harder to prove as most taxpayers don't retain records for income they earned over 10 years ago. |
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While the government has only six years from the date the non-filed return was due to criminally charge you with failing to file a tax return, there is no time limit for collecting taxes and assessing financial penalties for not filing. It is not until you actually do file a return that the audit time limit (three years) and collection time limit (ten years) start to run.
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As a rule of thumb, the IRS will look for only the last six years, and may be willing to work out an agreement for less for someone that is voluntarily coming forward.
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Actually, it is not uncommon to find that someone who didn't file not only didn't have any additional tax liability, but, because of withholdings or earned income credits, etc., may have a refund coming
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In order to complete the tax returns you will have to reconstruct your income and expenses for those years. The IRS can help you with some of the information if you ask. When talking to the IRS representative ask them to send you the "wage and income transcripts" for the years that you have not filed. If you go back further than seven years, they will not be able to get you information back that far as it has been removed from the active system. They will, however, let you know how to obtain that information.
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Past years tax returns cannot be filed electronically, you have to mail them, each return in a separate envelope.
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| If you have past years tax returns to file, our advice, as always, is to hire a tax professional. A professional decreases the chances of mistakes and, consequently, that the return will be audited. |
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Also, a good tax professional can offer advice on what you can do in the future to cut your taxes or reduce your audit risk.
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Whether you opt for professional help or not, remember that filing your tax returns can be the quickest way out of tax trouble.
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And you should file all tax returns that are due, regardless of whether or not full payment can be made with the return.
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