An Attorney for Unfiled Tax Returns

Tax Attorneys for Unfiled Returns and Back Taxes

Unfiled tax returns are a significant problem for the IRS, which is likely why they penalize non-filers at a much higher rate than non-payers. Even if you think you don’t owe taxes, not filing your tax returns on time means forfeiting your refund. If you do owe taxes, failing to file can saddle you with extensive penalties and interest charges. 

Thanks to tax forms from clients, employers, banks, and others you do business with throughout the year, the IRS knows whether or not you earned income throughout the year. That’s why it’s important to tackle your tax issues immediately and work to get caught up. The tax attorneys at Damiens Law understand how quickly you can fall behind, and we’re here to help. 

Keep reading to learn more about the issues surrounding unfiled taxes and how we can help you get back on track.

Key takeaways:

• Why people get behind – Unfiled tax returns are often the result of an inability to pay, stressful life events, and misunderstandings regarding filing requirements.
• Consequences of not filing – Not filing may result in a Substitute for Return, which often leads to a higher tax bill than you would otherwise receive.
• Penalties – Potential penalties include levies, liens, and financial penalties.
• Getting caught up – The first step to resolving these issues and getting caught up is filing your tax returns and exploring payment options.

Why Failing to File is Such a Common Issue

There are several reasons people may fail to file their annual tax return. 

Misunderstanding filing requirements

In some cases, people misunderstand filing requirements. For example, as of tax year 2024, single filers under the age of 65 must file if their gross income is $14,600 or more. This increases to $21,900 for head of household filers and $29,200 for those married filing jointly and qualifying surviving spouses. The limits are higher for filers older than 65. 

In addition to the income minimums, there are a variety of additional situations that require you to file. For example, if you owe taxes on unreported tips, if you have more than $400 in net self-employment income, or meet other criteria, you may be legally required to file. 

Assuming they do not owe

People may also not take the time to file because they believe they do not owe any money. Perhaps they assume that their withholdings cover the amount they owe or think that their income is too low to result in any tax due. 

If your income is under the threshold and you don’t meet any of the special filing criteria, you probably do not owe any income tax, but outside of that narrow category, you may owe tax if you had any income – particularly self-employment income – throughout the year.

Overlooking the deadline or dealing with personal hardships

In some cases, people simply forget. If they aren’t relying on a tax refund come April, they may just not think about tax season until they start getting urgent reminders from the IRS.

Finally, people may not file because of personal hardships. A lost job, a death in the family, a mental health crisis, or financial struggles can all lead to late or non-filed tax returns. People may believe that there’s no point in filing if they cannot pay what they owe, although that is not true.

Regardless of whether or not you ultimately owe additional taxes, you do still have to file if you meet the IRS’s filing requirements. Failing to do so may lead to penalties and other issues. That said, even if you don’t need to file, you may benefit from filing a return.

The Main Consequences of Unfiled Returns

While the IRS may not immediately catch your unfiled return, they will eventually realize that you failed to file. When that happens, you could face a number of consequences.

Penalties and Interest

The IRS will likely hit you with multiple penalties. The first is the failure-to-file penalty, which charges you 5% of your unpaid balance each month up to a total of 25% of the original balance. The second is the failure-to-pay penalty, which charges you 0.5% of the unpaid taxes each month; this is also capped at 25% of the original balance. 

You should also expect to be charged interest based on the IRS’s current rate. At the time of writing, the interest rate is 7% for underpayments, but it adjusts quarterly.

Loss of Refunds

This is one of the main reasons you should file, even if you know you won’t have to pay additional taxes. You can only recoup lost refunds for three years. After three years, you forfeit a tax refund for that year. If you consistently fail to file, you could be giving up hundreds or even thousands of dollars each year.

Collection Actions

You can’t rely on flying under the IRS’s radar forever—when they do realize that you have failed to file your taxes, they will assess your taxes for you and then bill you. If you fail to respond to their notices and letters or pay your taxes, they will move forward with more demanding collection actions, including liens, levies, and wage garnishment.

You may get Notice CP14 in the mail indicating your missed deadline and penalties you’ve been charged with, and if you do nothing after multiple notices, you may get the more urgent Notice LT16 which also alerts you about unfiled returns. Other notices you may get include CP59, CP516, or CP518, alongside Form 15103 to complete and return to the IRS.

Substitute for Return

Many people who don’t file their taxes have received a high tax bill in the mail some months or years later. This is because the IRS received tax forms indicating that you received payments during the year in question. They may have W-2s from employers, 1099s from clients, 1099-INTs from banks, or W-2Gs from gambling establishments. 

Based on the information they have, they have filed a Substitute for Return to calculate how much you owe. The bill you receive (notice of deficiency) for a Substitute for Return is often significantly higher than it would be if you simply filed your tax return. This is because the SFR does not include any deductions, credits, or exemptions you would qualify for if you filed a tax return.

Unlimited Assessment Period

The Assessment Statute Expiration Date indicates the end of the time period where the IRS can assess taxes for a particular year. You may think that this means that if you don’t file for a particular year, you’re free and clear after three years. However, the truth is that the three-year period doesn’t start until you actually file. Even if the IRS files a Substitute for Return on your behalf, the three-year timer doesn’t start until you file a return for the same year.

Time Limits and Statutes

It’s important to understand how long the IRS has to assess taxes for a particular tax year or attempt to collect taxes for a specific year and how not filing affects both of these deadlines. 

The Assessment Statute Expiration Date refers to the end of the timeframe where the IRS can assess taxes for a year. Generally, the IRS has three years from the received date of the original tax return or three years from the due date of the return. If you voluntarily do not file your tax return, the IRS may file a Substitute for Return for you. This does not start the clock ticking; the IRS can still assess additional taxes indefinitely.

The Collection Statute Expiration Date indicates when the IRS must stop collecting taxes. In most cases, the IRS has ten years from the date that the taxes are assessed to attempt to collect. The CSED is prolonged in certain cases—for example, when we’re talking about non-filed tax returns, you have to wait for the IRS to assess the taxes. 

Until the taxes are assessed, the collection deadline isn’t set. But the taxes aren’t assessed until you file. Essentially, you could be on the hook for paying taxes for much longer because of your choice not to file.

Filing your taxes—even if doing so means you’ll have a tax bill—sets a time limit on how long the IRS can come after you for your taxes.

Uncommon Situations That Require Extra Attention

While some people fall into the category of W-2 earners with straightforward tax returns, others have unique circumstances or situations that change how they may be affected by a non-filed return.

Self-Employed and 1099 Earners

Those who are self-employed or earn money from clients reported on 1099-NEC forms may lose even more when they fail to file returns. You are at risk of losing out on Social Security and Medicare credits. This could be incredibly harmful when you reach retirement age and do not have the necessary number of credits to get Medicare or Social Security benefits. Additionally, losing out on Social Security credits could make it impossible for you to get SSDI benefits if you become disabled.

There’s also a significant risk that you’ll owe even more than employees who fail to file returns. As a self-employed individual, you are responsible for paying self-employment tax. Those who work as employees have those taxes taken out of their paycheck, but as a self-employed individual, you do not. This could increase the amount you owe in penalties and interest.

Finally, if you are self-employed, you likely also have to pay your estimated taxes quarterly. If you aren’t filing your taxes, there’s a good chance you are also not making quarterly payments. This puts you at risk of having the underpayment of the estimated tax penalty assessed.

Multiple Unfiled Years

Once you’ve failed to file for one year, it’s all too easy for that to turn into two, three, or more years—especially if the IRS hasn’t yet contacted you about your unfiled return. However, having several years of unfiled returns can be dangerous.

Per the IRS, repeatedly failing to file your tax return could mean that the agency takes additional enforcement measures against you. You may have to pay additional penalties, and if they decide that your failure to file is willful, they can even pursue criminal charges against you.

State Returns

Those who fail to file federal tax returns often also struggle to file their state returns on time. States do not necessarily allow the same guidance as the IRS. Some state tax agencies have stiffer penalties and stricter requirements than the IRS, so on top of whatever penalties you end up paying to the IRS, you could be in even more trouble with your state’s tax agency. In some states, you’re at risk of losing your professional license or driver’s license if you do not file your tax returns.

Resolving Unfiled Returns

Now that you know the potential issues you may face due to non-filed tax returns, you can learn how to resolve your unfiled returns and get back on track with the IRS.

Documents and Information

This may take some time and work, so getting the right documents and information ahead of time will allow you to work through multiple returns quickly without having to search for documentation. Gather W-2s, 1099s, interest records from banks, and any other tax documentation you received from the years in question. 

If you aren’t sure where to start, you may want to reach out to a tax attorney for unfiled tax returns. They can use the Transcript Delivery System to pull your tax transcript for the years in question. This shows the wage and income documents submitted under your SSN, any documentation you’ve received from the IRS, and other information that can help you get started.

Filing Old Returns

When you file old returns, you can utilize tax credits, exemptions, and deductions that may decrease how much you owe. There are limitations to this; you can only claim credits within three years of the original due date. For example, if your tax return for tax year 2024 was due April 15, 2025, you could file with credits and deductions up to that same date in 2028. If you were to file after that, you would lose out on refunds and credits for that year.

What if the IRS has already filed a Substitute for Return for you? You can still file a tax return for that year. When you do, the IRS typically adjusts your account with updated figures. You may also request an audit reconsideration if you disagree with the return created for you by the IRS.

Seeking Penalty Relief

In some situations, taxpayers are entitled to penalty abatement. There are two main routes to penalty relief: first-time abatement and reasonable cause abatement. First-time abatement applies if you have filed necessary tax returns for the three years prior to the year in which the penalty was assessed and you did not receive any penalties in that three-year period. 

You can be granted relief from multiple penalties, which is a relief for those who are charged the failure-to-file and failure-to-pay penalties.

You may also request penalty abatement if you acted with reasonable cause. For example, if you became seriously ill or were affected by a natural disaster and could not file your taxes, the IRS may grant you penalty abatement.

Payment Options

Many people fail to file their tax returns because they cannot pay what they owe. If you’re part of that group, it may help you to know that the IRS has multiple payment options for those who are unable to pay in full. These options include:

• Installment agreement: A long-term installment agreement can extend your payments for up to 72 months. Those who cannot afford the minimum monthly payment may qualify for an extended payment term or a partial payment installment agreement—note, though, that the process of applying for this option requires a lot more documentation to prove your financial status to the IRS.
• Offer in compromise: If you can afford to put some money toward your tax debt but you can pay a smaller amount, you may qualify for an offer in compromise. However, the IRS has strict requirements for offer-in-compromise applicants. If your income is too high or you have too much equity in your assets, you may not qualify.
• Currently not collectible status: Those who cannot afford to pay anything to settle their tax debt may be temporarily considered currently not collectible. This places a temporary pause on collection activity, although interest and penalties do accrue during this time. When the CSED passes, the money owed is written off. If the IRS finds that your financial situation has improved, they can resume collection activity.

The options available to you may seem overwhelming, especially when you have limited experience with the IRS and don’t know what you qualify for. A tax attorney for non-filed tax returns and back taxes can help you compare your options and negotiate on your behalf with the IRS.

When It’s Time to Seek Professional Assistance

There are numerous signs that you may want to talk to an unfiled tax returns attorney about your next steps. First, if you have multiple years of unfiled returns or you know you owe a sizable amount to the IRS, consider consulting an attorney. These situations get complicated very quickly, as the penalties and interest you owe may make up a significant portion of your final tax bill.

Perhaps you’re uncertain about the documentation you need or whether your Substitute for Return is accurate. These situations also warrant a tax attorney consultation. Without the right documents—and if you don’t track your tax documents closely, losing them is common—getting caught up is difficult. An attorney can access your tax transcript and help you navigate this process correctly.

If you want to minimize the financial repercussions you face because of your non-filed returns, an attorney can help you request penalty abatement, compare different payment options, and negotiate with the IRS.

How Damiens Law Can Help

At Damiens Law, we’ve seen how tax problems can overwhelm our clients’ lives and leave them in a constant state of panic. You deserve the peace of mind that comes with getting back into compliance with the IRS’s filing requirements. We can look into your tax transcripts, get a better understanding of your current situation, and help you develop a plan to get caught up.

If you’re worried about your unfiled tax returns and the IRS coming after you for unpaid taxes, the first step is filing your late returns. This starts the clock on having taxes assessed and the IRS collecting them. The tax attorneys at Damiens Law can help you figure out what you need and get you on track. We’re here to make sure your rights and financial security are protected. Call us at 601-957-9672 or contact us online to schedule your 15-minute discovery call.