IRS Statute of Limitations on Unfiled Tax Returns: How Far Back Can They Go?

If you haven’t filed taxes in several years, it’s common to wonder how far the IRS will go to collect what they are owed. However, there is no statute of limitations when it comes to unfiled tax returns–they can go as far back as needed to penalize taxpayers.

While the IRS can technically go as far back as it chooses to penalize you for unfiled tax returns, they generally do not go further back than six years. Furthermore, there are voluntary disclosure programs that you can use to get caught up and become fully compliant with IRS requirements. Learn more about how the IRS’s statute of limitations varies for different tax situations, the penalties you may face for failing to file, and how you can get caught up.

Key Takeaways

• There is no statute of limitations on unfiled returns.

• The IRS can go back indefinitely and require a taxpayer to file.

• Usually, the IRS only requires taxpayers to file the last six years of returns to get back into compliance.

• You only have three years after the filing deadline to request a refund. The expiration date for claiming a refund is the final deadline after which the IRS will not issue a refund for that tax year.

• Once a return is filed, the IRS has just three years to audit the return or assess taxes.

• The assessment statute expiration date (ASED) is the deadline for the IRS to assess additional taxes after a return is filed. After the ASED passes, the IRS can no longer assess additional tax for that period.

• The collection statute expiration date (CSED) is generally ten years from the date of assessment, after which the IRS can no longer collect the tax debt. The expiration date marks the end of the IRS’s authority to collect for that tax year.

• If fraud is involved, the agency can go back six years.

• The IRS has six years from the last affirmative act to bring forward criminal tax fraud charges.

• If you don’t file, the IRS can issue a substitute for return to assess taxes against you.

Introduction to Unfiled Taxes

Unfiled taxes occur when tax returns are not submitted to the IRS by the required filing deadline. This situation can arise for many reasons—some taxpayers may be unaware of their filing obligations under current tax laws, while others may avoid filing due to fear of owing taxes or simply because they forget. Regardless of the reason, not filing tax returns can have serious consequences. The IRS imposes penalties and interest on unfiled tax returns, and in some cases, not filing can even lead to criminal charges. Importantly, the statute of limitations for IRS action on unfiled taxes does not begin until a tax return is actually filed. This means the IRS can pursue unfiled tax returns indefinitely, increasing your financial risk the longer you wait. If you have unfiled taxes, it’s crucial to address the issue promptly. Seeking assistance from tax professionals can help you understand your tax filings, navigate the complexities of the tax code, and bring your tax returns up to date, minimizing your exposure to penalties and interest.

What Is the IRS Statute of Limitations on Unfiled Tax Returns?

There is no statute of limitations on unfiled tax returns. This means that there is no point in time at which the IRS is legally barred from holding you accountable for your unfiled returns.

A statute of limitations refers to how long you can be held responsible for a certain action or crime. In this case, the term “unfiled tax return” refers to a tax return that would result in you owing money. Not filing a tax return that would result in a refund to you is not a crime; it’s just not a sound financial choice.

If you don’t file taxes, the timeline for the statute of limitations never starts. This means that the IRS can go back indefinitely, but in most cases, the IRS generally only looks back six years. However, this timeline can change if tax evasion or other serious issues are involved. If someone needs to file back taxes and doesn’t have a history of tax evasion, they may only need to file the last six years.

The IRS has several different statutes of limitations for different actions. Again, there is no statute of limitations for unfiled tax returns. This means that the IRS can go back 10, 20, or even 50 years in theory. However, in practice, the agency usually only goes back six years. There is also no statute of limitations for civil tax fraud, but if the agency wants to recommend criminal charges against you, they only have six years from the last affirmative action. Reviewing your past tax returns can help determine if you are in compliance and identify any potential exposure.

Each statute of limitations applies to a specific tax period, which is the timeframe covered by a particular tax return. Understanding which tax period is under review is important for assessing your situation.

Here are the other statutes of limitations related to your federal income tax return:

Tax assessment

The IRS has three years to assess taxes once a return has been filed (meaning the IRS has three years to assess tax, or formally determine and record the amount of tax owed, for that tax period). This means that after you file your tax return, the IRS has three years to audit the return and assess additional tax against you. The deadline for the IRS to assess additional taxes for a given tax period is known as the assessment statute expiration date (ASED). However, if you understate your tax liability by 25% or more, the IRS can go back six years.

Basically, this means that failing to disclose your full income to the tune of 25% or more of your gross income may allow the IRS to go back six years instead of three. Imagine you disclose $100,000 on your tax return but fail to disclose $30,000 in income. That is above the 25% threshold of your gross income and would allow the IRS to collect even if you are past the three-year mark.

Note that the understatement rule applies to your tax liability, not to your income per se. However, for the sake of this example, we just used income numbers with an assumption that they correlate to the same portion of taxes owed.

Tax audits

The statute of limitations for audits is the same as it is for assessments. Again, however, if you understate your tax liability or if you have an FBAR violation, the agency can go back six years. If a taxpayer files a false or fraudulent return, the statute of limitations does not apply, and the IRS can audit at any time.

For payroll tax return audits, the statute of limitations is also three years, but it doesn’t start until April 15 of the year following the year the wages were paid. However, with ERC claims from the last two quarters of 2021, the IRS has five years to start an audit.

Tax refunds

You also only have three years to claim a refund. This three-year window is known as the refund statute, which is the legal time limit for claiming a tax refund. If you haven’t filed, you have three years from the original due date to file and get a refund. Similarly, if you amend a previously filed return to get a refund, you only have three years from the date you filed or two years from the date you paid the tax.

Criminal tax charges

In cases of suspected criminal fraud, the IRS has six years from the time the return was filed or six years from the last willful act that prevented you from filing. There is a lot of subjectivity in determining the last willful act. Effectively, that can mean that the IRS has unlimited time to assess fraud charges against you if you haven’t filed a return. If the IRS believes you didn’t file your taxes due to fraud or evasion, you can face civil penalties up to 75% of the owed taxes.

Tax collection

Once a tax has been assessed against you, the IRS has 10 years to collect it. This 10-year period is known as the collection statute expiration date (CSED), which is the specific date when the IRS’s authority to collect a tax debt expires. After this time, the agency can no longer enforce collections against you. However, the tax must be assessed. This happens when you file a return or the IRS assesses tax in an audit. However, if you don’t file your return, the IRS can file a substitute for return (SFR) on your behalf, and this counts as a tax assessment.

Once the statute of limitations passes, the IRS can no longer take action. After the CSED, the IRS writes off the remaining balance and cannot pursue further collection efforts. Again, however, if you don’t file a return, the clock never starts ticking for tax assessments or collections. That means if you have an unfiled return from years ago, the agency can assess the tax with an SFR, and then, if you don’t pay, it can forcibly collect the tax from you. This can include tax liens, wage garnishments, bank account levies, asset seizures, and other actions.

Time-Sensitive Tax Matters

When it comes to tax returns, timing is everything. The IRS sets strict due dates for filing tax returns, paying any taxes owed, and claiming tax refunds. Missing these deadlines can result in costly penalties, interest charges, and even the loss of your right to claim a refund. For example, if you are due a refund, you must file a tax return within three years of the original due date to receive it. If you owe taxes and fail to file a tax return, the IRS may step in and file a Substitute for Return (SFR) on your behalf, often resulting in a higher tax liability than if you had filed yourself. To avoid these time-sensitive pitfalls, it’s important to prioritize your tax matters and, if necessary, consult a tax professional to ensure you meet all deadlines and minimize your tax liability.

What Happens If You Don’t File a Tax Return?

Taxpayers have tax obligations to file and pay their taxes on time. The consequences of not filing vary depending on your unique situation. Here are a few of the things that can happen.

Losing Your Tax Refund

You only have three years to file a tax return and claim a refund. The timeline for this statute of limitations starts on the return’s due date. For instance, your 2021 tax return was due Monday, April 18, 2022. That means you have until April 18, 2025, to file and claim a refund on your 2021 tax return. 

Having a Substitute for Return Filed by the IRS

If you don’t file, the IRS may file a substitute for return (SFR). These returns are often incorrect, and the IRS reports your income but not your deductions. As a result, SFRs generally lead to a much higher tax liability than you would owe if you filed a correct return. Once the IRS generates an SFR, it sends it to you and requests your response about the assessment.

Criminal Consequences

If the IRS believes that you have intentionally failed to file a tax return to evade paying taxes, you could face criminal charges for tax evasion. A conviction may result in up to five years in prison, fines as high as $100,000 for individuals, or both.

Penalties

The penalty for not filing a tax return is 5% of the amount you owe. It applies monthly, and it can get up to 25% of the balance. There are also failure-to-pay penalties and penalties for understating the tax you owe. The IRS also assesses interest on your unpaid balance, and that accrues from the day the return is due until you pay the tax. A late payment penalty is generally 0.5% of unpaid taxes each month, which can also reach up to 25% but accumulates more slowly compared to late filing penalties.

Difficulty Getting Loans

Not filing a return can also affect your ability to get loans. Many lenders want to see your tax return as proof of your income. This is especially true if you are self-employed or if you are applying for a mortgage. 

What If You Receive an SFR for Unfiled Tax Returns

A substitute for return is a tax return that the IRS files on your behalf if you have missing tax returns. The agency uses income information it has received from third parties such as W2s from employers, 1099-NECs from clients, 1099-Ks from payment processors, 1099-INTs from banks, and similar forms. Typically, these returns use the single filing status, and they don’t include any dependents, deductions, or tax credits.

If the IRS sends you a substitute for return, you have 30 days to do one of the following:

• File a correct Form 1040 (Individual Income Tax Return) — Filing your tax return ensures that the IRS knows how much you really owe.

• Sign a Consent to Assessment and Collection — This indicates that you agree with the tax shown on the SFR and you give your consent for the IRS to collect it.

• Write a letter explaining that you didn’t have a filing requirement — You don’t always have to file a return. If your gross income was below the filing threshold, you may not have been required to file. If your income was under the standard deduction, you had less than $400 in net self-employment income, and you didn’t owe any special taxes, you probably didn’t need to file. Note that the filing rules are complicated, and if you’re unsure, you should reach out to a tax professional for help.

If a taxpayer does not respond to a substitute for return, the IRS may issue a statutory notice of deficiency.

• File a correct Form 1040 (Individual Income Tax Return) — Filing your tax return ensures that the IRS knows how much you really owe.

• Sign a Consent to Assessment and Collection — This indicates that you agree with the tax shown on the SFR and you give your consent for the IRS to collect it.

• Write a letter explaining that you didn’t have a filing requirement — You don’t always have to file a return. If your gross income was below the filing threshold, you may not have been required to file. If your income was under the standard deduction, you had less than $400 in net self-employment income, and you didn’t owe any special taxes, you probably didn’t need to file. Note that the filing rules are complicated, and if you’re unsure, you should reach out to a tax professional for help.

If you ignore the SFR, the IRS will send you a Notice of Deficiency. Also called a 90-day letter, this notice shows how much tax, interest, and penalties you owe. It also explains your rights to appeal in Tax Court. If you ignore this letter, the IRS can start collection actions against you. This may include tax liens, wage garnishments, and asset seizures.

Consulting a professional tax expert can help you determine your filing requirements, including whether your gross income was below the filing threshold, and assist you in resolving SFR issues efficiently.

How to Catch Up on Unfiled Returns

Dealing with unfiled returns can feel very overwhelming. Most taxpayers aren’t even sure where to start. The standard advice is to gather your paperwork and fill out the returns that correspond to the unfiled years. However, this is easier said than done. Most people who haven’t been filing don’t have the paperwork they need on hand. To ensure accuracy, it is important to gather your past tax returns, as these documents provide a record of your previous filings and help you identify missing information. Here are some tips to help you.

• Set up an online IRS account — You can request copies of W2s, 1099s, and other payments. You can also see if you pay any estimated tax payments on your account.

• File Form 4506-T (Request for Transcript of Tax Return) — This paper form lets you request a transcript of your old tax returns, but you can also request wage and income transcripts. This is often the easiest way to get your payment information.

• Contact previous employers and other payers — If you don’t want to risk getting on the IRS’s radar by setting up an online account, you may want to reach out to the people who paid you. They may be willing to send you copies of the forms you need.

• Gather info about business expenses – Business owners need to deduct expenses from revenue to calculate net profits. If you don’t have bookkeeping records, look through bank and credit card statements to find your expenses. Vendors and utility companies may also have records of what you spent in various years.

Once you have the information you need, make sure that you select the tax returns from the correct years. Each tax form corresponds to a specific tax period, so it is important to use the form for the exact year you are filing. The IRS updates its tax forms annually so you can’t use the current year’s return to file for a previous year.

Some tax prep software lets you fill out previous years’ returns, but generally, you won’t be able to e-file. You will need to print and mail the returns. A tax professional can help you handle all aspects of this process. They can help you figure out which years you need to file. They can also help you obtain your wage and income documents from the IRS or directly from the payer.

How Does the IRS Find Out About Unfiled Returns?

Generally, the IRS finds out about unfiled returns when it notices a mismatch between payment documents and filed returns. For instance, if the IRS has been receiving W2s or other tax documents with your Social Security Number, it will eventually notice that you didn’t file.

While you no longer have to worry about the IRS making unannounced home visits due to unfiled tax returns, the IRS does still devote a significant amount of its resources to tracking down non-filers. These enforcement and compliance efforts are a key part of the IRS’s broader tax administration responsibilities, which include managing tax collection, issuing substitute returns, and resolving tax disputes. The agency also renewed its focus on automating SFRs and taking other action against high-income non-filers. This includes a flurry of non-compliance mailings, as well as more intense collection efforts that will escalate quickly if taxpayers are unresponsive or non-compliant. The current plan is to target those in the highest income brackets first and work their way down. Ultimately, you probably won’t go to jail for not filing, but you can face other severe consequences for not filing.

Although collection actions slowed down or stopped entirely due to the pandemic, the IRS is largely back to business as normal. The agency is sending out LT38 to notify taxpayers of the resumption of automated notices and collection activities.

Tax-Related ID Theft

Tax-related identity theft is a growing concern for taxpayers. This type of fraud occurs when someone uses your Social Security number or Individual Taxpayer Identification Number (ITIN) to file a fraudulent tax return and claim a refund in your name. Not filing your tax returns can make it easier for identity thieves to exploit your information, as the IRS may not immediately detect suspicious activity. To protect yourself, consider setting up an online account with the IRS, where you can monitor all wage and income documents submitted under your identity. Regularly reviewing your income documents and tax return history can help you spot unauthorized filings or discrepancies. If you suspect that you are a victim of tax-related ID theft, contact the IRS right away to report the issue and take steps to secure your account. Staying proactive is key to preventing further damage and ensuring your tax records remain accurate.

How to Pay Taxes Due to Unfiled Returns

People don’t file their tax returns for all kinds of reasons. They may be busy with work or dealing with health problems. Or they may just put off the task because it’s unpleasant. A lot of people, however, don’t file because they don’t think that they can afford to pay if they owe taxes.

If you have unfiled returns and you’re worried about a tax bill, you are not alone. IRS payment options are available for those with unpaid taxes from unfiled returns. If you file your tax return late, the IRS will start charging interest on any unpaid balance as soon as the return is due.

There are many people in your situation, and the IRS has options including the following:

• Installment agreement — Make monthly payments on your tax debt for up to six years.

• Offer in compromise — Settle your tax debt for less than you owe.

• Partial payment installment agreement— Make monthly payments on a tax settlement.

• Currently not collectible status— Prove you can’t pay so the IRS temporarily stops collection actions against you.

Once you file your returns, you can also try to reduce the balance by requesting penalty abatement. Generally, it’s better to file all of your delinquent returns at the same time. This makes it easier to request penalty abatement for several years at the same time.

Note that most of the above programs require you to stay compliant with your tax filing and payment obligations. For instance, if you are making payments on an installment agreement and you fail to file a current year’s return, you will be in default of your agreement. Then, the IRS can demand the full balance and try to enforce collection actions against you.

How to Deal With Unfiled Returns

To break it down, here is what you need to do if you have unfiled tax returns:

1. Determine if you had a filing requirement. It is important to meet your tax obligations by making sure to file tax returns for all required years. Note that even if you weren’t required to file, you may want to file a return so that you can claim a tax refund if applicable.

2. Figure out how many years you need to file. Again, the IRS typically only requires you to file the last six years of returns, but the requirement can vary based on the situation. Because there is no statute of limitations on unfiled tax returns, the IRS can require you to file all of the returns that you missed.

3. Gather financial information for the years you need to file. You need information about your wages and other income, business revenue and expenses, and details about your dependents. If you paid estimated tax payments, you also need those numbers.

What Happens Each Year You Don’t File?

Some taxpayers who fall behind on tax filings are habitual non-filers. This means that unfiled returns pile up each year, and with them, a list of penalties and potential consequences.

The first year you don’t file taxes, you may still qualify for penalty abatement if you get caught up, request penalty abatement due to previous compliance with tax laws, and commit to staying caught up moving forward. If you do not file, you will max out your failure-to-file penalty in five months, but your failure-to-pay penalty will add up until it reaches 25% of what you owe. Penalties and interest accrue on unpaid taxes, increasing your total liability the longer you wait to file or pay.

The second year you don’t file taxes, your previous unfiled tax return has likely ballooned substantially. The IRS compounds interest daily, so between how late your tax return is and the fact that you’re also paying interest on penalties, your tax bill is significantly higher than it used to be. The remaining balance continues to grow each year you do not file, making it harder to resolve your tax debt. You now fail to file a second year, which starts a new round of the failure-to-file and failure-to-pay penalty. Again, these will accrue until they each total 25% of your tax debt. You will likely not qualify for penalty abatement, since you have already missed one year of tax returns, showing a history of non-compliance. This takes away one of your biggest relief options.

In year three, both of your previous unfiled tax returns have now resulted in debt far greater than what it would have been had you simply filed on time. At this point, your decision not to file may appear willful to the IRS, and there’s a good chance they will pursue more aggressive collection actions against you–especially if your tax bill is very high. The ideal time to take action was three years before this point; the second best time is now.

Understanding Tax Laws

Navigating the world of tax laws can be challenging, especially since the tax code is complex and frequently updated. Changes in tax laws—such as those introduced by the Tax Cuts and Jobs Act (TCJA)—can significantly impact your tax liability, deductions, and credits. Understanding these rules is essential for accurate tax filings and for making the most of available tax benefits. Tax professionals are invaluable resources for interpreting the tax code, staying current with new regulations, and ensuring you remain compliant. By working with a tax professional, you can better understand your obligations, minimize your tax liability, and avoid costly mistakes that could trigger IRS scrutiny.

Common Tax Mistakes

Mistakes on tax returns are more common than you might think, and they can lead to unnecessary penalties, interest, or even audits. One of the most frequent errors is not filing tax returns at all or submitting them after the deadline. Other common mistakes include entering incorrect or incomplete information, forgetting to sign the tax return, or failing to pay the full amount owed. To avoid these pitfalls, consider working with tax professionals, using reliable tax preparation software, and carefully reviewing your tax return before submission. Keeping thorough records and documentation for your income and deductions can also help support your tax claims and ensure your filings are accurate. By being mindful of these common tax mistakes, you can reduce your risk of IRS penalties and keep your tax filings on track.

 

Get Help With Unfiled Tax Returns

Dealing with your current year’s taxes can be stressful. Dealing with back taxes can be almost unbearable, but we can help. At Damiens Law Firm, we focus on helping our clients resolve tax issues including unfiled returns and tax debts. Working with a professional tax expert, such as a CPA, tax attorney, or IRS representative, can ensure your unfiled returns and tax debts are handled efficiently and compliantly. We can help you file your back taxes and make payment arrangements with the IRS.

Unfortunately, when clients ask us how far back can the IRS go for unfiled taxes, we have to tell the, that there is no statute of limitations on unfiled returns. The IRS can come after you at any time, and the longer you wait, the worse the penalties and interest will be. To protect yourself, your business, and your assets, contact us today.

Contact us online or call (601) 476-2693 to schedule a free consultation.

Frequently Asked Questions

What is the IRS 6-year rule? Is there a statute of limitations on taxes?

In most cases, the IRS has three years to pursue taxpayers for errors or omissions on their tax returns. However, the 6-year rule comes into play when there is a substantial underreporting of the tax liability on your tax return–25% or more. This allows the IRS to go further back to collect what you owe. The 3-year and 6-year period refer to the statute of limitations for specific tax situations resulting in underpaid taxes. The statute of limitations applies separately to each tax period covered by a tax return, meaning the IRS assesses each tax period individually when determining deadlines for audits or collections.

How far back does the IRS go for unfiled tax returns? How long can the IRS come after you for unfiled taxes?

There is no statute of limitations for unfiled tax returns. Theoretically, the IRS can go as far back as it wants in these cases, although it rarely does unless there is a lot of money to be collected. If you have fallen behind, it is important to take immediate steps to get caught up and not wait for the IRS to catch you. Reviewing your past tax returns can help you determine your exposure and identify which years need to be filed.

What happens if I ignore IRS communications and do not file a return?

The IRS will file a Substitute for Return for you, based on income reported on W-2 and 1099 forms. They will use that to calculate how much you owe without taking into account additional deductions or credits you may be owed.

How far back can I get a refund if I fail to file?

You have three years from the date on which the tax return was due to file and still get your refund. This three-year period is set by the refund statute, which is the legal deadline for claiming a tax refund. For example, in tax year 2024, your due date would be April 15, 2025. You would need to file by April 15, 2028 to claim your refund.

What if the IRS files a SFR for me? Can I still file my taxes?

You can still file your taxes, you will simply be filing over your SFR and requesting an SFR reconsideration. This can result in a significant decrease in your tax bill. You can dispute the SFR and later file a correct return to potentially lower your tax owed.

Will the IRS penalize me if I don’t file a tax return when I am owed a refund?

It is not against the tax code not to file if you are owed a refund. However, you do forfeit that refund after three years. The failure to file penalty begins on the first day your tax return is late and continues to accrue until the return is filed.